How businesses can navigate renewable energy procurement

As businesses and organisations work to achieve sustainability goals, understanding the trends in energy generation and costs and the various options for renewable energy procurement is crucial.

To help Small and Medium-sized Enterprises (SMEs) operate more sustainably and responsibly, whilst maintaining profitability and long-term growth, the government commissioned an independent review - the Willow Review - to prove the economic case for sustainable practices ¹.

The Willow Review

Recently, the Willow Review published initial recommendations for the government, SMEs, and financial services. For SMEs, it proposes a five-point sustainability plan.

Willow Review’s five-point plan for sustainability in SMEs

• Switch to sustainable materials
• Reduce travel and optimise logistics
• Minimise waste through circular economy initiatives
• Adopt renewable energy sources
• Partner with sustainable suppliers and clients

The Willow Review will publish its final report in June 2025, which will include more detailed recommendations that would enable a shift in SMEs sustainability adoption over the next five years.

UK reaches green power milestone

UK reaches green power milestone, but retail prices remain historically high. The UK’s total electricity generation, including imports, increased slightly by 0.7% to 274TWh in 2024, compared to the previous year ².

Power generated from renewable sources, (wind, solar, biomass and hydro) reached an all-time high at 118TWh and accounted for 43% of the UK’s electricity mix, marking 2024 as the greenest year on record.

Estimating the cost of energy from different sources can be complex. However, studies by government bodies, such as the Department for Energy Security and Net Zero (DESNZ) and the Office for Budget Responsibility (OBR), along with consultancies like Aurora Energy Research, have found that renewable power is cheaper than gas-fired electricity^3,4,5. 

So, if the UK has more renewable electricity, why aren't costs decreasing?

While energy costs have significantly declined over the past 24 months, businesses are still paying more for electricity than they did before the energy crisis.

According to consultants Cornwall Insight, on average small industrial consumers including retail and leisure facilities as well as small manufacturers, are predicted to pay 53% more for their electricity in 2025 compared to the pre-energy crisis levels ⁶.

A major factor keeping prices above historic averages is non-commodity costs, also known as third-party charges.

These charges are expected to stay high for some time as new costs and fees come in. It's important for businesses to look into renewable energy options and green business energy tariffs.

Non-commodity charges are now estimated to account for around 55% of a medium-sized business electricity bill, the single largest component remains the cost of power in wholesale markets, whilst third-party charges also contribute towards the overall bill.

The price of gas still influences the cost consumers pay for electricity.

Wholesale electricity prices are set by the price paid to the most expensive power generating unit used to meet demand by the grid at a particular moment in time.

Gas-fired power plants are the most expensive generators of electricity, while renewables are the cheapest and are therefore the first to supply the grid.

Since renewables alone cannot cover the need for electricity, the next cheapest source is used (typically nuclear) and the next, until demand is met. This is called the “merit order”.

In summary, electricity prices are influenced by gas prices. As gas is a globally traded commodity, events outside the UK can significantly affect supply and demand, leading to price volatility.

Renewable energy is becoming a strategic choice

Renewable energy is increasingly becoming a strategic choice for businesses, and it doesn’t have to be expensive. Renewable energy procurement  is crucial for businesses aiming to advance sustainability. It not only helps decarbonise the economy but is also becoming a driver of business growth.

Despite the challenges posed by the cost-of-living crisis and inflation in recent years, consumer research shows that sustainability significantly influences customer decision-making.

For example, a recent survey conducted by The Round Up found that 55% of consumers are willing to pay more for eco-friendly brands, whilst 51% would avoid products that they know are bad for the environment ⁷.

Another consumer survey by PwC found that customers are willing to spend an average of 9.7% more on sustainably produced goods ⁸.

Moreover, businesses are increasingly considering environmental, social and governance (ESG) factors when seeking a new partner ⁹.

Given these insights and the current outlook for electricity generation and costs, it is essential for businesses to navigate the renewable energy procurement landscape effectively and understand how a green energy contract could benefit them.

We have analysed the energy market and reviewed relevant information to provide evidence-based insights on renewable supply options for businesses.

Below is a high-level overview of the renewable electricity procurement hierarchy, ranging from conventional to light green and deep green options.

Procuring renewable energy with confidence

Procuring a new renewable energy contract can be a daunting process for many businesses.

Many suppliers offer customers the option to upgrade from a standard or conventional contract to a green energy alternative at a premium to cover the cost of REGOs.

A key differentiator to compare suppliers’ renewable credentials is to look at their fuel mix for their standard business-to-business (B2B) customers.

According to our research of fuel mix information published by the largest energy suppliers for the period April 2023 – March 2024, most suppliers’ renewable share was below the UK average ¹⁰.

Another differentiating factor is where the supplier ranks when it comes to buying electricity from renewable generators under PPA offtake contracts.

According to energy consultants Cornwall Insight, British Gas is the second-largest offtaker in the UK PPA market.

For added confidence, the Carbon Trust has independently verified that the electricity supplied by British Gas business is 100% backed by REGOs, from natural renewable energy sources in the UK.

How can a green electricity contract benefit my business?

The cost of electricity remains above pre-energy crisis levels, driven by both commodity and non-commodity.

Commodity is due to prices being determined by gas, which is subject to volatility on a macro level.

Non-commodity costs include network charges and policy costs, and each varies greatly in terms of what drives the level of cost, when the charges are published and how they are recovered.

These, alongside the introduction of new third party charges, are rising.

Despite this, sustainability is still on the agenda and companies are caring more about choosing sustainable options, which can also be an enabler for business growth.

Businesses can adopt a mixed approach that incorporates light green options while transitioning to deep green energy. This strategy can balance reducing carbon footprints and managing costs. Move your business towards sustainability without any additional cost.

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