By Mark Rose, Sales & Marketing Director
Welcome to the second in a series of posts from Rob Kerr – Customer Service Director, Anton Roberts – Commercial Director and myself on some of the most pressing issues in the energy industry today – and how we’re responding.
Please note that any opinions here our own comments, and not official positions of TotalEnergies Gas & Power. I’ll take a brief look at energy markets, but the main focus will be Net Zero – what TotalEnergies are doing to work towards our goals and the options available to you to help reduce emissions.
What is currently going on in the market?
It is safe to say that events so far in 2022 have been truly shocking, and our thoughts are with those directly affected in Ukraine, and their families.
These events have also further impacted a turbulent UK energy market. Since last year the spiralling cost of energy has dominated the news, alongside a wider cost of living crisis with inflation being at record levels. In the business energy market, we’ve seen increasing costs for end users, although the implementation of MOD 797 earlier this year means the non-domestic sector will not share the costs of future gas supplier failure in the domestic market. TotalEnergies Gas & Power played an active role in this change being made, which should save more than £100m for the non-domestic market.
Increasing wholesale energy prices have been driven by a lack of storage and JKM (Japan Korea Marker Benchmark LNG prices), exacerbated by the events in Ukraine, with gas prices reaching a high of almost 520p/therm in March and electricity prices also spiking to a high of nearly £500 per MWh.
The rise in prices means that energy costs will now be at the forefront of business customers’ minds as they becomes an even greater proportion of expenditure, particularly when fixed contracts end or for those on flexible contracts. This will be exacerbated by rises in non-commodity costs because of government investment in renewable energy and supplier failure, and the impacts of inflation.
How will Net Zero be affected by current market challenges?
With the current wholesale price crisis affecting the industry and end users, and concerns over security of supply, it is easy to think that Net Zero will start to play second fiddle. But in some ways, it is more important than ever.
- The window of opportunity is limited – All the science says that averting a climate disaster means acting now, and not delaying decisions. The UK government set a target of Net Zero by 2050, but there are also some equally challenging targets in the shorter term, not least a 50% reduction on 1990 levels by 2025. The world needs to act now if it stands a chance of keeping climate change to within 1.5 degrees Celsius (on 1990 levels).
- Improve security of supply for UK PLC – Recent events have highlighted the risks of a reliance on energy supplies from unstable sources. An investment in low carbon generation (nuclear, wind, solar) would reduce that reliance, although the transition will clearly take time and investment given the lead times on development. The government has recently launched a new energy strategy with nuclear and renewables at the heart of it.
- Measures will be more financially attractive than ever – Over the last couple of years there has been a strong trend for large scale solar and wind projects to become more cost effective, and the International Renewable Energy Agency said that in 2020 almost two thirds of the wind and solar projects built globally were able to generate cheaper electricity than the world’s cheapest coal plants. The recent wholesale price rises will also make smaller scale on-site generation more attractive in avoiding the high prices and fluctuations, as well as building green credentials for customers. Payback times on these installations has fallen significantly given a fall in costs and the current electricity prices.
What is TotalEnergies doing?
At TotalEnergies we have a commitment to be a world-class player in the energy transition, and want to do this by producing and selling energy that is affordable, cleaner, reliable and accessible to the greatest number of people globally. We’ve set some ambitious targets for 2030 both on direct and indirect emissions with the aim of being carbon neutral by 2050.
Renewables are at the heart of this target, with an aim to have 100 GW of capacity by 2030. This commitment is reflected in our investment in offshore wind in the UK, with stakes in over 5 GW of capacity including the ScotWind project. This will be enough to power over 3 million homes when they are all operational.
Within TotalEnergies Gas & Power it is a priority to help customers on their journey to net zero. We offer a range or renewable power and gas products across small and large business and the public sector. We also offer carbon offsetting, and access to tools to understand the efficiency of sites. We’re taking steps internally to work towards net zero, procuring renewable energy at our sites and looking to reduce the emissions of our fleet over the coming year.
What options are available for customers to help reduce emissions?
There are a range of options available to customers, each with different pros and cons – although from a cost perspective there aren’t any clear winners due to the market price of REGOs rising considerably recently.
On-site generation – If a business has a site with the space for on-site generation such as solar this could be an attractive option. This can provide a visible statement of green credentials, and also some protection against market volatility. However, most businesses will not have the space for this or own the property, and if it is feasible will either require a large upfront CAPEX investment or the commitment to a long term PPA. It will also cause disruption at the site while it is in the project stage. Given recent wholesale price rises the case for this investment is looking better than it has previously.
Corporate PPA – These are long term contracts under which the end user (e.g. business or Local Authority) agrees to purchase electricity directly from an energy generator. A licensed supplier also needs to be a party in the contract to make this agreement work. The advantages are that the end user can choose what they want the specific renewable source to be. On the other hand, it can be difficult to find a generation source that meets requirements, and the process to structure the PPA can be time consuming and complex, with involvement from multiple parties.
Traceable renewable products – These types of products are becoming more popular where the supplier has both the power or the gas and the renewables certificates (REGOs or RGGOs) to go with it at the same time. The supplier will then match those specific certificates to your supply. This provides the assurance of knowing specifically where the power has come from, without the complexity of a Corporate PPA. It also opens up the opportunity to request certain generation types or locations (e.g. a Local Authority that wants all it’s power sourced from a specific region).
REGO/RGGO backed products – When power or gas is produced from a renewable source, a REGO (Renewable Energy Guarantee of Origin) or RGGO (Renewable Gas Guarantee of Origin) is also created. This can then be purchased by suppliers and be allocated, sometimes separately from the power itself. From this you can effectively match your consumption to generation from a renewable source – a relatively simple and common method of signing up to renewable power, but you won’t always be able to match it up to the specific generation source.
Carbon Offsetting – Carbon offsetting can be an alternative for customers in circumstances when the emissions can’t be eliminated. For example green gas certificates (RGGOs) have limited availability and are very expensive, so other options may need to be considered. There are carbon offsetting certificates that can be purchased from a variety of projects in the UK and abroad, and these can be matched to a business’s emissions to net off the environmental impact.
We are heading into a critical time in the shaping of an energy policy that can provide us with security of supply, while staying on the journey towards Net Zero.
https://business.totalenergies.uk/carbon-net-zero to find out more.