Blog: Sustainability trumps Finance?

Scott Petersen believes that Sustainability professionals are now making all the important decisions in organisations looking to achieve NetZero

Last week, we signed another contract for Green Demand Side Response (GDSR) with the organisation behind the world’s leading business and finance publication. Interest and momentum around GDSR are really building in the UK and it really is an exciting time for the team at OakTree Power.

What has been interesting in our recent client discussions, has been the growing involvement of Sustainability Directors in the decision-making process. Green DSR is a technology that taps into the flexible electricity load of medium and large non-domestic buildings. We’re therefore used to engaging with a wide range of decision makers and influencers with a vested interest in the building, from across all levels of an organisation – including Corporate Real Estate, Facilities Management, Engineering, Finance, Procurement, Legal, Operations and even CEOs!

But the focus on Net Zero and the growing importance of ESG (Environmental, Social, and Governance) reporting, means that sustainability professionals are a new prominent face at the table and are often leading the debate on whether their organisation should embark on Green DSR.

When we first launched OakTree Power, we explained Green DSR as a technology that could deliver financial benefits and CO2 savings to certain types of organisations. Very quickly we have flipped that around to highlight the CO2 emissions as the prime benefit over the new revenue stream, reflecting the change in priorities within most organisations.

Having signed the latest contract, the client team acknowledged that although the CO2 reductions for their own organisation were important, their decision was greatly influenced by the fact that they were becoming part of a bigger movement. GDSR was allowing them to make a direct “green” contribution to the UK’s electricity balancing system, support the switch to renewables and achieve the legally obliged national Net Zero target.

The word “green” is in inverted commas because the current balancing resources, which are used to support the supply of electricity when there is a shortfall in generation from renewables such as when the wind doesn’t blow, is far from green in nature. Over 90% of the balancing resources which are called on to bridge the shortfall is generated from gas and diesel sources. Batteries help but are currently making only a small contribution. To support the green, switch-to-renewables strategy, when the going gets tough we fall back on some of the worst, carbon polluting methods of generation available.

This irony was not lost on our new client. As I explained to them, what’s even worse is that the balancing market is driven by cost above any other criteria, so guess what is despatched first when the need comes calling? Low-cost diesel and gas generation whose capital costs were paid off years ago! The supply choice is being determined on economic merit by the cost per kW rather than the efficiency of the processes and their related emissions.

The good news is that GDSR can compete on a cost footing but, in our opinion, it should be despatched ahead of fossil fuelled alternatives, when the grid’s balancing service needs help, simply because the technology is emission free. In fact, we would argue that Green DSR should be allowed to carry a premium, for this very reason.

This tension between financial mechanisms and sustainability objectives reflects a conflict which will recur as the UK moves towards an increasing reliance on renewable generation for its electricity needs. In the last couple of days, we have seen a challenge to the traditional role of National Grid as the gatekeeper for our energy supply partly because of this tension. For National Grid, environmental performance is still not the number one priority because as balancing costs end up on all of our electricity bills, unreasonably they are motivated and rewarded to minimise costs for consumers – a policy slightly at odds with the sustainable goals of the UK’s drive to Net Zero. It will be interesting to see how the proposed FSO (Future System Operator), if and when it comes into being, will change the priorities.