Why joining an aggregation group may be the answer to SME clean energy procurement
Mid-sized companies are the engine of the global economy. The World Bank says SME’s represent 90% of businesses globally. So it’s safe to say that if we don’t get mid-sized companies on board, the energy transition won’t happen.
Saying might be easier than doing. SMEs have big hoops to jump through if they want to procure renewable energy. Their volume requirements are small; their consumption profile might be a poor fit for intermittent generation; some might simply lack the skills or resources to manage a complex and time-consuming tender process.
For many, teaming up in an energy-buying consortium to maximise negotiating leverage is the answer. But the challenges don’t completely disappear. You have to find potential partners, and you have to be confident there’s enough alignment between the parties to see an agreement through.
Let’s look at the benefits of joining forces and list the practical steps mid-sized companies can take to create an energy aggregation arrangement of their own.
What is energy aggregation?
Energy aggregation happens when a group of businesses band together to purchase energy. Procurement might happen through a single developer or across multiple projects.
Aggregated PPAs (power purchase agreements) capture the benefits of buying at scale and make large group-led purchases of clean electricity possible. Buying as a consortium means SMEs can benefit from the negotiation, cost, and price advantages that come with a large bulk purchase
An aggregated PPA makes procurement with other buyers more feasible. It works for medium-sized organisations or larger companies looking to purchase renewable energy on a smaller scale.
It cuts through complexity and extends the base of potential customers for smaller-scale projects.
The upside of aggregation
Along with expanding access to clean generation sources, aggregation also delivers an essential business benefit: money saved.
The cost of renewables is going down every year, but SMEs have struggled to access lower prices. However, when multiple mid-sized companies partner to buy at bigger volumes, they can secure more significant discounts.
They can also mitigate risks related to price volatility, regulation, market events, operations, or financing — each with the power to eat into margins, stall construction, delay go-live dates, or reduce output once a project is operational.
Bringing supply chains into line
Many companies chasing net-zero targets have made great strides in reducing their direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions. Scope 3 emissions, however — those driven by supply chain partners — are much harder to grapple with.
Companies’ supply chain emissions are 11.4 times higher on average than their own emissions. If sustainability targets are going to be seen as credible, supply chain emissions have to be included.
Aggregation agreements provide the opportunity to build new rules around Scope 3 emissions reduction into energy supply chains. Suppliers can be asked to commit to the Scope 3 standard for example, and commit to regular reporting on their emissions from 15 GHG Protocol categories.
Digitising procurement processes can also facilitate more sustainable procurement, eliminate inefficiencies, standardise contract processes, and ensure that emissions data from suppliers is being tracked and reported.
Matchmaking through data
While the benefits of energy aggregation are compelling, negotiating a workable agreement can be hugely complex.
Negotiation exits are common, as potential partners learn that their respective business processes, risk tolerances, stakeholder sensitivities, or specific procurement objectives don’t quite match up.
Zeigo’s data-driven platform enables companies with high scores for potential ‘fit’ to find one another and hammer out an aggregated PPA.
We provide a matchmaking service that helps connect like-minded buyers based on their consumption profile, business objectives and procurement needs.
You can use it to join an existing aggregation group, launch a new one, or create an ‘instigator’ group, where one lead company provides support to clients or partner companies. For companies focused on reducing Scope 3 emissions, aggregated PPAs make it easier to align supply chain partners without compelling them to participate directly in the PPA agreement.