Future energy solutions for large users

Vayu’s Head of Electricity, David Gascon, outlines its approach to controlling the costs of large energy users and its innovative work with renewables.

Whenever the topic of conversation turns to energy costs, I am never left in any doubt that many Irish businesses are continuing to struggle with the volatility of prices.

The seemingly endless rise in the cost of oil, gas and electricity in recent years has inevitably meant that the energy spend for business and industry has ballooned, and price volatility doesn’t make cost management any easier.

We are now seeing many manufacturing multi-nationals, which initially established business in Ireland due to our attractive corporation tax rate, being lured to low-cost destinations in Eastern Europe because of the energy savings. Recent figures tell us that Irish businesses are paying the highest electricity costs in Europe, at 40 per cent over the EU average (Source: Eurostat 2013).

Despite that gloomy introduction, there is much to be hopeful about. We’ve seen an increase in companies moving to Vayu, largely because we are an independent supplier of electricity and natural gas and our energy solutions offer businesses more control over costs, both short- and long-term.

We have been in business since 2003, and I am sure most people would agree that it’s been an ‘interesting’ decade of learning for every company. We have certainly learned from it. The fact that Vayu has grown to be a leading independent supplier for industrial and commercial customers like Tesco, Bulmers, FMC and DHL tells me that the demand for our tailored services is going to continue growing in our key markets in Ireland, the UK and the Netherlands. For instance, we are already supplying 22 per cent of Ireland’s largest natural gas business users.

We are acutely aware too that alongside immediate costs, sustainability is also of increasing importance to many organisations. Many have very stringent goals regarding their energy fuel mix, and some want to source their entire energy needs from 100 per cent renewable power.

Traditionally, electricity generated by renewable power projects has been sold directly to licensed suppliers which then trade on the wholesale market or supply to customers. Businesses that have actively sought out green electricity have been able to sign up to green tariffs, but these tariffs in some cases offer no guarantee of origin and no greater security of supply than traditional brown power tariffs. As a final kicker, they could also be less competitively priced.

Long-term PPAs

As part of Vayu’s ongoing strategy, and our customers’ demand for green power, we have been increasingly contracting with renewable projects in Ireland through long-term Power Purchase Agreements (PPAs). Until recently, we had been operating the Vayu supply and generation businesses in a separate fashion. However, more recently we have shifted our emphasis to bringing consumers and generators together, irrespective of location, generating capacity or supply requirements.

Instead of only buying electricity directly from us, consumers can contract directly with generators for part of their electricity requirement. They then sell on the electricity (and renewable benefits) to us at Vayu, and in turn we ‘credit’ their account with the corresponding amount of electricity.

As the generator is not supplying the customer directly (i.e. with a private wire) the customer still requires an electricity supply agreement, which needs to be compatible with the Power Purchase Agreement, allowing the on-selling and crediting arrangements as I have described them above.

In short, this has huge advantages for customers. They are able to control energy pricing fluctuations over the long term, from a minimum of three years right up to 15 years, by agreeing a pricing structure and methodology with Vayu. This can be a fixed or variable pricing mechanism, or a combination of both.

Aside from the benefit of cost predictability, it secures renewable power to the customer by directly linking it with a specific project. It is also attractive from a corporate social responsibility (CSR) perspective, as it can directly support local communities, help Ireland collectively to achieve its renewable targets and lower the company’s emissions for carbon.

I’m in absolutely no doubt that Vayu’s direct PPA model builds on a common sense approach of putting energy hedging and sustainability to work hand-in-hand. Proof of the pudding is in the eating, of course, and I’m pleased to report that our Power Purchase Agreement model has already proven to be popular with large, pace-setting energy users.

Where some only see rainclouds, at Vayu we concentrate on the silver linings. This is genuinely an exciting time in the renewable energy sector, for generators and consumers alike. The IKEA Ireland example is a case in point, where IKEA will sell its own electricity generation to Vayu. In turn, we will supply it to the retailer’s Dublin and Belfast stores under a 15-year contract, making it one of the first corporate businesses in Ireland to implement a renewable strategy in this way.

Work on the wind farm is already under way in County Leitrim and it is expected to be operational in 2014. It is being built by global wind and solar specialist Mainstream Renewable Power, which will operate the plant for its 20-year life cycle. The four turbines will have a capacity of 7.65 megawatts and an expected annual production of 25GWh, generating enough electricity to cater for the needs of approximately 5,500 houses a year. *(Source: IKEA press release August 2013).

This is our vision at Vayu, and I’m pleased that the way we see things is aligned with our growing list of customers. We were thrilled that in a recent Commission for Energy Regulation report on fuel mix and CO2 emissions, Vayu was declared to be the only energy company to supply 100 per cent renewable energy to our electricity customers in Ireland in 2012.

We see our direct power purchase agreement as an attractive model for other companies which want sustainable solutions in managing their power requirements. As we see it, achieving the Government’s target of 40 per cent renewable generation by 2020 will require such close collaboration. It is the future of electricity production in Ireland, and we are pleased to be at the forefront of it.

Benefits of direct PPA model

• Price certainty and cost control over the medium to long term

• Access to renewable power

• Energy neutral

• Supports renewable energy projects

• Reduces carbon footprint and prevents climate change

• Helps Ireland reach its renewables targets by 2020

• Supports local communities

• Green credentials

• Help organisations achieve sustainability objectives

David can be contacted as follows:

Tel: +353 (0)1 884 9400

Email: david.gascon@vayu.ie

Web: www.vayu.ie

Twitter: @vayuenergy