Improve Value Chain Energy Efficiency and Invest in Renewable Energy
Environmental Defense Fund
Addressing some of your company’s Scope 3 emissions may require waiting for viable solutions to develop. But solutions to the energy-based emissions in your value chain are available and implementable now. Encouraging your suppliers to adopt these solutions will demonstrate your company’s commitment to sustainability and reduce costs.
Energy-based emissions are a central part of your company’s Scope 3 emissions. Your company can work with your suppliers to identify the key sources of energy use in their operations, and develop energy management strategies to reduce them that are specific to their case and context.
Encouraging your suppliers to invest in on-site renewable generation or purchase off-site renewable energy can bring numerous benefits to both your company and theirs. First and foremost, it can help reduce your carbon footprint and demonstrate your commitment to addressing Scope 3 emissions, which is increasingly important to consumers and stakeholders. Additionally, by reducing your suppliers’ energy costs you can improve the resilience of your value chain to climate transition risks and fuel price fluctuations.
Improve Energy Efficiency in Your Value Chain
The first step to improving energy efficiency in your value chain is to help your suppliers identify the main sources of energy consumption in their facilities. For example, according to the latest Commercial Building Energy Consumption Survey by the US Energy Information Administration, about 32% of building energy consumption was for heating.1 An energy audit can help your suppliers identify key areas of energy consumption where improvements can be made. Potential solutions to optimize energy use in your suppliers’ buildings may include:
- Optimize & Upgrade HVAC (heating, ventilation, and air conditioning) Systems: The HVAC system is the largest consumer of energy in most commercial buildings. Improvements may include regular maintenance, replacing older systems with high-efficiency equipment, and implementing control strategies such as demand-controlled ventilation.
- Optimize Lighting: Some examples to optimize lighting in commercial buildings include switching to LED lighting and implementing daylight harvesting and occupancy sensors that can reduce energy consumption while maintaining lighting quality.
- Manage Plug Loads: Implementing power management strategies and turning off devices when not in use can reduce plug loads and energy consumption.
- Engage Building Occupants: Educating employees on energy-saving practices, such as turning off lights and unplugging devices, can significantly reduce energy consumption.
- Implement Energy Management Systems: These systems can monitor HVAC systems, lighting, and plug loads, providing real-time data on energy consumption. This data can be used to identify trends and patterns in energy consumption, thus enabling informed decisions on energy-saving measures.
Invest in On-Site Renewable Energy in Your Value Chain
With advancing technology and increased availability of funding incentives, on-site renewable energy is becoming an accessible and cost-effective option for businesses. You can encourage and support the suppliers in your value chain as they navigate on-site renewable energy systems. Some of the key factors for your suppliers to consider include selecting the appropriate technology (e.g. solar or wind), conducting a feasibility study, developing a project plan, engaging stakeholders, hiring experts, and managing the system over time.
Your company can also assist your suppliers in managing the costs of building an on-site renewable energy system. While the initial capital expenditure can be high, there are several funding incentives available to help offset them. In addition to your company directly investing in these renewable energy systems, here are some of other common funding opportunities that your suppliers may utilize:
- Grants: Grants for renewable energy systems are typically offered by federal or state agencies, non-profit organizations, or private foundations.
- Power Purchase Agreements (PPAs): A PPA is a contract between your company and a third-party renewable energy provider. For on-site projects, the provider installs and maintains the renewable energy system, and your company purchases the energy generated by the system at a discounted rate. PPAs can be a great option if you want to invest in renewable energy but don’t have the upfront capital to do so.
- Energy as a service (EaaS): EaaS is another business model gaining popularity. In EaaS, a third-party provider builds an energy system on your property, which can save you the costs of building and maintaining a system yourself.
- Tax Incentives: Companies that invest in on-site renewable energy systems can also get tax-incentives including federal tax credits, state tax credits, and accelerated depreciation. The federal Investment Tax Credit (ITC) offers a tax credit equal to 30% of the cost of the on-site renewable energy system.2
There are also additional government programs available for on-site renewable energy projects. The U.S. Department of Energy offers technical assistance and funding opportunities through its Office of Energy Efficiency and Renewable Energy. The Environmental Protection Agency also provides resources and assistance through its Green Power Partnership program. Additionally, state, and local governments may offer incentives or assistance for renewable energy projects.
Encourage Your Suppliers to Purchase Off-Site Renewable Energy
In some cases, it may be more appropriate and cost effective for your suppliers to purchase off-site renewable energy instead of building renewable generation on-site. Encouraging your suppliers to purchase off-site renewable energy is an effective way to achieve both economic and environmental goals for your value chain.
If purchasing renewable energy, it is important for your suppliers to determine their energy needs and identify the amount of energy they will need to buy. This will allow them to select the appropriate procurement strategy, which may be: a power purchase agreement (PPAs), a virtual power purchase agreement (VPPAs), or green tariffs. Other strategies available in certain locations include community solar and direct access (purchasing renewable energy directly from independent power producers, bypassing the utility).
Finding the right supplier for off-site renewable energy can be a challenging task and depends on the chosen procurement strategy. Overall, when selecting a renewable energy supplier, it is important to evaluate their experience, track record, and ability to deliver the specified amount of renewable energy over the contract period. To find a reliable and reputable supplier, you can consult with renewable energy experts or consultants.
Finally, you should encourage your suppliers to consider the holistic ESG impact of off-site renewable energy procurement projects. The Nature Conservancy’s ‘3Cs’ approach — Communities, Conservation and Climate — can guide considerations.3 For example, is the local community opposed to the project? Did the project impact wetlands or cause deforestation? Does the project credibly create additionality? These, and similar, questions are important to ask as your suppliers consider purchasing off-site renewable energy.