In December the windmills, which H&M helped build with ECOHZ GO², started to produce electricity and supply power to the grid. We sat down with Preben Munch, Director of Corporate Customers & Strategic Partnerships at ECOHZ, to discuss why GO² was set up, how stands out, and what we can expect moving forward.
How did ECOHZ GO² come about?
We regularly speak with companies and one trend became clear through our conversations: companies wanted to both document that they use renewable energy and contribute to building new renewable power plants to actively engage in the energy transition. The concept of additionality was a common criterion in the carbon market, and some companies naturally transferred their expectations to the renewable energy market. Simultaneously, certain environmental non-governmental organisations pushed companies to make their contribution to building more renewable power plants.
The market did not have any answers to that question, so we decided to create a solution. Documenting a company’s renewable energy consumption sends an important signal to the market, so we added additionality to Guarantees of Origin. This led to ECOHZ GO².
How did the corporate demand reflect the market at the time?
It was the time when Power Purchasing Agreements (PPAs) was becoming a buzzword in the U.S. We knew from our conversations with companies, that PPAs were an option for the few.
Most companies wanted shorter contractual commitments, products that were simple and could also meet smaller energy consumptions. They also wanted to outsource the in-depth renewable power plant skills, rather than having to build this skillset in house. We realised we needed to invent a product that built on the Guarantees of Origin system, which was driving the European energy transition, and which also had a lower threshold with a shorter commitment period and lower financial risk than PPAs.
After recognising the market need, how did you go about developing a completely new product?
To put it simply, we talked to a lot of different people. It took time, and we concluded that the product needed to have five key features. It had to:
- be simple and have a low entry point, removing the complexity of the PPA
- facilitate a year-on-year commitment, rather than a long-term commitment. In addition, a one-year commitment had to be enough to create additionality, which means building a new power plant.
- focus on maximising the quantity of new renewable MWh to the grid.
- complement, not compete with bank financing to the renewable energy projects.
- be an open platform that others, with the same aims, could use and build on.
We developed ECOHZ GO² with companies and for companies, and their feedback was critical in the product development phase.
CDP also played a central role. They saw the benefits of this new product and met it with enthusiasm, also because ECOHZ GO² is an open platform and not exclusive for ECOHZ. ECOHZ GO² laid the foundation for our further cooperation with CDP to advance the renewable agenda.
For the sake of transparency and clarity we launched ECOHZ Renewable Energy Foundation which receives the GO2 financial contribution from our customers and is the entity lending the financial contribution to the projects.
How did you go from developing the product to actually finding both the renewable energy projects that need top-financing to be realised, and the companies that wanted to create additionality with ECOHZ GO²?
We only select projects that:
- have the formalities in place. This includes approved formal building and environmental permits, and a confirmed grid connection
- use proven technologies such as wind, solar, hydro, biomass and geothermal
- have a credible project developer
- have conditional financing secured. For example, a bank will conditionally finance the project if the top-financing is secured
Since ECOHZ GO² was a new product and a new way of working, we found that meeting the project owners face-to-face was the most effective way of selecting the right projects. We reached out to several organisations such as wind farm developers’ associations, small hydro power operators’ associations, as well as banks that finance new projects. By tapping into these existing communities, we have created a natural deal flow of renewable energy projects in need of additional funding, or top-financing as we call it.
Simultaneously we looked for companies that were keen both to document that they use renewable energy and contribute to building more renewable energy. Several companies have also made a public commitment by joining RE100 that they will only use renewable energy. ECOHZ GO² is a solution to help RE100 companies achieve their goals and go one step further. COP21 and the UN Sustainable Development Goals have motivated companies further to actively participate in the energy transition. Others want to bridge between now and when they have their PPA up and running. ECOHZ GO² complements both ends of the spectrum and anything between.
So what can we expect now that Tågeröd is up and running?
Now that Tågeröd is producing renewable energy, ECOHZ GO² will quickly have an exponential effect. The new renewable power plant is selling electricity to the grid and the project owner will repay the money borrowed from ECOHZ GO² back to the ECOHZ Renewable Energy Foundation. The foundation will then quickly recirculate that money to another project with a similar need for top-financing. This will happen with every new renewable energy plant that corporates top-finance and ECOHZ GO² bring to the grid. This is a repetitive virtuous circle: very quickly, we see the proof of concept working as money committed to one project is reapplied to the next. So, in short, ECOHZ GO² has an exponential effect of creating more renewable MWh with a given sum of money.
We have several new customers in the pipeline and we are looking forward to announcing more renewable energy projects top-financed with ECOHZ GO².
What is GO2
GO2 is a product for companies that want to contribute to the energy transition. By documenting renewable energy consumption and helping finance new renewable energy plants, companies quickly contribute to increased renewable energy production in an accessible way. The product is a Guarantee of Origin that documents your renewable energy consumption with an additional premium that is borrowed to new identified powerplant projects that lack the necessary financing to be built. When the power plant produces energy, it repays the loan which is then used to top-finance another project and again another and so on. Thereby, GO2 by its inherent circurlarity brings exponentially more renewable energy to the grid.