Reducing Your Carbon Impact? Online Reverse Auction is Key

As awareness of the effect we have on the environment increases, organizations that consume large quantities of energy are seeking cost-effective ways to mitigate their environmental impact by reducing their carbon footprint. The following outlines a typical approach, along with solutions, for reducing your carbon impact cost-effectively. As with most challenges of this magnitude, there is no one answer, but rather a portfolio of activities to consider in order to move your organization toward the common objective.

Operation and Behavioral Changes

Usually a multifaceted approach is taken starting with no-cost/low-cost measures to reduce wasteful energy consumption. These measures typically consist of operational or process changes (e.g., retro-commissioning), coupled with employee awareness and behavior modification. The upfront cost is nominal and the economic performance of these measures is outstanding – a better investment for companies in any industry is hard to imagine. Utility incentive programs often support implementation of these measures, making the economics, thereby, too good to ignore. With effective timing, these measures can be implemented and completely paid for within a single annual budget cycle, reducing the level of internal authority needed for project signoff.

Energy Efficiency Measures

The next level in the process of reducing an organization’s carbon footprint is upgrading with energy-efficient equipment. Energy-efficient equipment upgrades take longer to plan and more money to implement than the abovementioned low-cost measures. Included in these measures is replacing mechanical systems, electrical equipment and instrumentation. These measures are also often subsidized by utility incentive programs. Unfortunately, even with incentives, simple payback for these measures is typically in the range of two to five years. This puts the decision in a totally separate category as the money allocated for these projects comes at the expense of cash that could be used for expanding other areas of one’s business. Because these energy-related projects are competing with core-business projects for funding, they typically get shelved. While performance contracting is a useful solution to this funding challenge, it too often goes unused because of the level of investigation required. Both the environment and the company’s bottom line suffer as opportunities go unexploited.

RECs and Carbon Offsets

With onsite measures having been considered and implemented to the extent possible, the next step often utilized in reducing one’s carbon footprint is offsetting the impact of onsite energy use. Two tools most commonly used are Renewable Energy Certificates and Certified Carbon Offsets. With the help of the US Environmental Protection Agency and their Green Power Partners Program, purchasing Renewable Energy Certificates (RECs) is now commonplace for many companies, institutions and governmental organizations. RECs allow organizations to participate in the green power market even if they are long distances from a wind, solar or low-impact hydro electrical generating plant. For each megawatt-hour of electricity generated by a certified renewable energy plant, one REC is produced, which can be sold to any consumer wanting to support the green energy industry. Currently, the price for basic RECs is less than $1/mWh on a national level. The premium for RECs adds approximately 1% to 2% to the delivered cost of electricity. While a few percent doesn’t seem like much, for large organizations this can add hundreds of thousands of dollars to their annual electricity bill. Fortunately, there have been some recent changes in how energy is being purchased that can offset the green power premium.

Free Green Power Upgrade

We’ve recently been using an online reverse auction platform for both electricity and natural gas procurement. Our recent experience with a very large institution has shown that a reverse auction can reduce the price you pay for electricity by $1/mWh when compared to the results provided through the typical RFP process. To come up with those stated savings, we ran a controlled test over two days and adjusted for the daily movement in wholesale market prices. The result was client savings of over $50,000/year or $1/mWh with the online reverse auction. Interestingly, the savings are more than the current price for Renewable Energy Certificates. So, if you combine the reverse auction with the purchase of offsets (i.e., have the suppliers bid green power), you can get a green power upgrade for “free.”

Even the EPA’s Green Power Partnership’s “Guide to Purchasing Green Power” extols the benefits of an electronic reverse auction…“Electronic auction platforms (also known as electronic procurement or “e-procurement”) allow for real-time transparent bidding and “reverse auctions” drive bid prices lower than might be achieved otherwise.” “Online auctions can provide significant price transparency and control that the paper-based RFP process does not always provide. With the reverse auction approach, price quotes are delivered in real-time via a Web-based platform, which results in dynamic bidding and helps achieve rapid downward price pressure that is not normally achieved using conventional paper-based bidding and procurement.”

If you stay open to new ideas and processes (e.g., retro-commissioning and an online reverse auction for electricity and RECs procurement), you can not only reduce your carbon footprint, but also save money and get your company closer to achieving the common objective.

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