Today’s businesses have a lot on their plates. Becoming or remaining profitable while navigating competitive markets and supply chain issues is hard enough. Then there are global, regional, and local events. For some business leaders, it can be overwhelming.
But one area where these C-suite occupants can make a difference is by implementing strategies to make society better. This is where CSR (Corporate Social Responsibility) comes in. For companies negotiating Power Purchase Agreements (PPAs) and reviewing the LCOE formula (where LCOA stands for Levelized Cost of Electricity (or Energy, or Electrons)), CSR can help guide decisions. This is how.
What is CSR?
In its broadest sense, CSR is how private businesses aim to benefit society through their endeavors. It began as a form of self-regulation but increasingly, is expected by investors, regulators, and governments.
This makes CSR an essential consideration for high-level business managers.
How CSR and PPA intersect?
CSR in the energy production and purchase field is easily identified. Many businesses involved in these agreements, such as motor vehicle manufacturers, chemical plant operators, and others, clearly aim to reduce their carbon footprints.
One way they can do this is by negotiating Power Purchase Agreements with energy suppliers who operate “green” assets. This is easier than ever because the development of renewable energy sources has accelerated, especially over the past 15 years. As a result, onshore wind power and solar are now the cheapest forms of electricity production for two-thirds of the global population.
Why LCOE matters?
The Levelized Cost of Electricity is a metric power suppliers, regulators, and others use when considering the cost of producing electricity per megawatt hour by a production asset over its lifetime. LCOE is essential because it provides a benchmark to estimate the viability, or otherwise, of investing and developing a production asset.
The formula used for such decisions is complicated by various factors because each power-producing asset has unique features. For example, gas-fired power station calculations must include fuel costs, which fluctuate depending on events such as the war in Ukraine. Wind and solar plants do not suffer from that issue but have challenges with technology, permits, and other things.
Historically, renewables benefitted from subsidies to encourage adoption. But now that their benefits and cost-efficiencies are proven and “grid parity” exists, those subsidies are less readily available, affecting the LCOE and viability of projects. As a result, any PPA must be above the LCOE of a production asset for sellers to make a profit and buyers to ensure they have a reliable energy supply.
Where CSR, LCOE, and PPA fit together?
The three concepts intersect from a high-level perspective. Energy sellers, buyers, and regulators all have views on fulfilling CSR. And they may disagree. For example, while environmental concerns are significant to all, the profit motive, which drives community investment, sustainable growth, and future planning, can also have a place.
But, as this article in Harvard Business Review points out, expecting CSR to deliver tangible business results might be unrealistic. Instead, the core focus on aligning CSR activities with purpose and values is where stakeholders should focus their efforts, even if the direct benefits are not immediately apparent.
