Meeting business demand: Why on-site green energy generation will be key

National Grid ESO published its latest Future Energy Scenarios earlier this year, which outlines how much energy the UK may need in the future, as well as the potential generation sources for this energy, from renewables through to hydrogen.

The report recommended policies to accelerate energy efficiency, encourage greater flexibility and spearhead investment in new technologies to support businesses under pressure to reduce their impact on the environment, particularly when it comes to 'greening' their energy supply.

The scenarios also predict that generation capacity is expected to increase rapidly through the 2020s to meet energy demand.

Independent generators already play an important role in supporting the grid during times of high demand.

From the work we carried out last year in our Future of Energy report with Imperial College London, we know that sustainable on-site power generated by businesses has the potential to replace imported natural gas by 2035, helping the UK to realise its ambition of becoming energy independent and keep our net zero targets on track.

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Why more businesses are investing in on-site renewable energy

The wholesale energy market has seen significant volatility in the past two years, with many businesses having to deal with increased costs, despite action by the UK government to support them with their energy invoices.

To achieve these economic and environmental goals many businesses are considering the advantages of on-site power generation. In fact, our 2023 Business Energy Tracker report showed that there has been a substantial increase in businesses investing in on-site generation.

Last year, just over one in four (27%) businesses said this was in their plans – this year saw it rise to over a third (36%), with solar photovoltaic (PV) the most popular solution.

For us, there are five clear reasons why more businesses are investing in on-site generation:

• It reduces carbon emissions. The most effective way to reduce emissions is by switching to a zero-carbon supply - such as solar PV or wind.
• It lowers energy costs. With on-site generation technology, a site will only generate the energy the organisation needs to use, encouraging a more efficient way to operate.
• It protects against price fluctuations. By avoiding non-commodity costs and protecting against wholesale price volatility, on-site generation puts the organisation in control of its energy usage.
• It provides an increased stability of supply. Loss of energy can be costly, particularly to critical industries operations such as healthcare. Installing on-site generation alongside battery storage can help protect organisations from power outages.
• It results in an improved reputation and sustainability credibility. With greater public focus on ‘greenwashing’ - where an organisation’s zero-carbon commitments do not stand up to scrutiny - installing on-site generation is a clear signal that organisations are serious about sustainability.

So, what are the options available to businesses who would like to install an on-site generation asset? And, how can you sell the power you generate to other businesses?

Solar PV, wind, biogas, CHP: choosing the right asset for your business

The most suitable option will depend on the size of your premises, its location and the feasibility of installation.

For example, on-site wind power generation is particularly suitable for businesses with surplus land located in non-urban areas - those with exposed space, a high average wind speed and good site access are ideal. Alternatively, solar PV is a great option for businesses with a good amount of south-facing roof space or suitable adjacent land, such as a car park.

For hard-to-decarbonise sectors, such as the food industry, agriculture, water and waste management, there is an opportunity for biogas production from sources such as crop residues, animal manure from livestock, food, and other green waste and wastewater sludge.

Industrial and commercial sites that use large quantities of heat and power may be suitable for a combined heat and power (CHP) unit. This provides on-site electricity generation while the heat produced from the process is captured and used elsewhere in your building. It works by converting fuel into electricity through a generator to power on-site operations.

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Earn additional revenue by selling power

Another major benefit of investing in an on-site asset is that it could also generate additional revenue, through selling excess power to eager corporate buyers via a fixed or flexible Power Purchase Agreement (PPA).

We are responding to an understandable increase in customer demand for a renewable, sustainable energy supply. As such, there is a natural fit between independent generators who want to sell their power via a PPA, and meeting the demand from corporate buyers.

PPAs are contracts between renewable power generators and commercial buyers, offering a valuable route to market for asset owners to sell their power. Not only do PPAs provide additional revenue for businesses, but they can also help to reduce energy costs and carbon emissions.

When it comes to selling your power, deciding which PPA is best can be complex and is based on a range of factors, including:

• Annual output: fixed PPAs can be a good choice for generators with a limited annual output. However, if your annual output is 6GWh or more, flexible PPAs could offer a better route to market
• The nature of your generation: some renewables, such as biomass power, offer a steadier output regardless of weather conditions. Others, like wind and solar PV, are more intermittent and weather-dependent
• Your time constraints and risk appetite: the energy market is complex, and your familiarity with it can be a deciding factor when choosing the best PPA for your asset
• Your organisation’s objectives: whether you want a steady and risk-free revenue stream or wish to optimise profits with a flexible agreement, your goals will ultimately determine which PPA is best for you.

Moving towards a renewable energy future

Business demand for renewable energy is only set to grow. As a result, independent energy generators, including those organisations with on-site assets, will undoubtedly play an important role in both supporting the growth of home-grown clean energy and in meeting the growing demand from businesses that want to procure their power from renewable sources.

However, we also need policy interventions from the government to unlock the power potential of business. These include streamlining planning rules and more tax incentives to enable more businesses to invest in sustainable on-site generation.

Author: Vish Sharma, head of power purchase agreements, npower Business Solutions