Renewable Energy Requirements in Supply Contracts
A precedent clause for a supply agreement requiring the supplier/ contractor to procure energy from renewable sources.
What this clause does
Future-proofs contracts, avoids costly reprocurement (as the global mix of energy supply swings towards renewable sources), meets funder, customer or government procurement requirements (as the use of renewable energy becomes standard market practice) and helps achieve net zero targets.
Recitals
(A) [Insert Eddie’s Recitals (Climate Recitals) here.]
Clauses
Drafting Option A: No Bidding
[Drafting note: use with Suppliers/ Contractors who would not likely run a formal bidding process for electricity supply. It is up to the Suppliers/ Contractors to manage their costs efficiently to maintain a margin under the Supply Contract. If using this Drafting Option A, many of the additional definitions set out above will not be required.
1. Procurement of Wholly Renewable Energy
1.1 The [Supplier]/ [Contractor] shall ensure that [100%]/ [at least [●]%] of the electricity supplied to it during the term of this Agreement is Wholly Renewable Energy.
1.2 The [Supplier]/ [Contractor] will provide [unequivocal] evidence*, satisfactory to the [Company]/ [Authority], that the electricity to be supplied is Wholly Renewable Energy.
[Drafting note: consider specifying what constitutes ‘evidence’. The strongest example here would be providing copies of Renewable Energy Certificates (RECs), which are available to the Energy Supplier, as proof that the Renewable Energy Obligation has been met.]
Drafting Option B: Company/ Authority’s Request For Bids To Suppliers
[Drafting note: adapt Option A above and/ or Option C below to add terms to the Company/ Authority’s bidding process for the Supply Contract. For example, Suppliers/ Contractors could put forward a Contract Price based on a [●]% Renewable Energy Obligation and a Contract Price based on a lower (or zero) Renewable Energy Obligation. The Company/ Authority can then decide how important the [●]% Renewable Energy Obligation is versus a lower Contract Price. It may be more efficient to do this upfront as part of the competitive bidding process, rather than during the term of the Supply Contract.]
Drafting Option C: Supplier’s Request For Bids To Energy Companies
[Drafting note: use only with suppliers who are likely to run a bidding process for energy procurement.]
1. Procurement of Wholly Renewable Energy
1.1 The [Supplier]/ [Contractor] shall undertake the Energy Procurement in accordance with the terms of this clause [1], and the [Supplier]/ [Contractor] will ensure that this clause [1] is replicated in the Energy Procurement documentation [(and that the scoring matrix for the Energy Procurement has been developed in accordance with the requirements of this clause [1])].
1.2 The Energy Procurement must include:
1.2.1 A requirement that bidders submit at least one Renewable Solution to the [Supplier]/ [Contractor], and that any bidder who does not submit at least one Renewable Solution will be disqualified from the Energy Procurement; and
1.2.2 A scoring matrix to assess bidder compliance with the terms of the Energy Procurement.*
1.3 Within [two weeks] of the closing date for the Energy Procurement, the [Supplier]/ [Contractor] will provide the [Company]/ [Authority] with a summary of the bids received (but excluding any bid disqualified pursuant to clause [1.2]), including:
1.3.1 The price of electricity specified in each bid;
1.3.2 In the case of each Renewable Solution, reasonable details of how that Renewable Solution complies with or exceeds the Renewable Energy Obligations;
1.3.3 In the case of each Non-Renewable Solution, a confirmation that the relevant bidder has also submitted at least one Renewable Solution; and
1.3.4 A comparison of the prices of Renewable Solutions against the prices of the Non-Renewable Solutions, together with confirmation by the [Supplier]/ [Contractor] of which bid it intends to accept (subject always to clause 1.4).
* [Drafting note: consider whether there would be preferential scoring if a greater percentage of the Renewable Energy Obligations is offered.]
Drafting Option C1
[Drafting note: use where less direct control by the Company/ Authority over the Supplier/ Contractor’s energy supply is appropriate (e.g. where the Supplier/ Contractor will be procuring energy for its general business use and for the benefit of multiple projects/ customers).]
1.4 When making its determination as to which bid to accept, the [Supplier]/ [Contractor] may only accept a Non-Renewable Solution where such Non-Renewable Solution is at least [10%] less expensive than the cheapest Renewable Solution received*, and in such a case, the [Supplier]/ [Contractor] may accept a Non-Renewable Solution without further discussion with the [Company]/ [Authority].**
* [Drafting note: consider the percentage levels overall given normal differentials and the desire to deter from non-renewable sources.]
** [Drafting note: consider when this assessment of price comparison should take place and whether it should be more than once (e.g. upfront, after 12 months, etc). Additionally, determine the reference point for the price comparison. Note that cost may not be the only driver here. Credit support provided by the Supplier/ Contractor and credit support that will need to be provided by the Company/ Local Authority will be relevant considerations in assessing whether an offer should be accepted.]
1.5 The [Company]/ [Authority] is entitled to submit comments to the [Supplier]/ [Contractor] in relation to any bid notified to it pursuant to clause [1.3], and the [Supplier]/ [Contractor] must take into account the views of the [Company]/ [Authority] when making its decision as to which bid to accept, [provided that the [Company]/ [Authority] has submitted its comments to the [Supplier]/ [Contractor] no later than [one week] after receipt of the [Supplier’s]/ [Contractor’s] notification.]
Drafting Option C2
[Drafting note: use where more direct control by the Company/ Authority over the Supplier/ Contractor’s energy supply is appropriate (e.g. where that energy will be supplied directly to the Company/ Authority or used exclusively for a particular project).]
1.4 Where the cheapest Renewable Solution is more expensive than the cheapest Non-Renewable Solution by [10%] or less, the [Supplier]/ [Contractor] must accept that Renewable Solution [at no additional cost to the [Company]/ [Authority].]*/ [. In such a case, half of the resulting increase in the Contract Price will be borne by the [Company]/ [Authority], and half- by the [Supplier]/ [Contractor].]
* [Drafting note: while it is fine upfront to direct that the supplier accept this, it is highly likely that any such additional costs will be passed through the Company/ Local Authority.]
1.5 Where the cheapest Renewable Solution is more than [10%] more expensive but no more than [20%] more expensive than the cheapest Non-Renewable Solution, then the [Supplier]/ [Contractor] shall[ use its best efforts to]/ [, acting reasonably,] submit a proposal to the [Company]/ [Authority] with supporting evidence, illustrating how the greater cost of the Renewable Solution will affect the Contract Price. The [Company]/ [Authority] may then at its discretion:
1.5.1 Accept the [Supplier’s]/ [Contractor’s] proposal of the adjusted Contract Price and direct the [Supplier]/ [Contractor] to accept the Renewable Solution; or
1.5.2 Reject the [Supplier’s]/ [Contractor’s] proposal of the adjusted Contract Price and direct the [Supplier]/ [Contractor] to accept the cheapest Non-Renewable Solution.
1.6 Where the cheapest Renewable Solution is more than [20%] more expensive than the cheapest Non-Renewable Solution then the [Supplier]/ [Contractor] may accept the cheapest Non-Renewable Solution without further discussion with the [Company]/ [Authority], [provided that this be reviewed within [●] months or an annual marketing exercise is conducted to compare the cost of the chosen solution against alternative Renewable Solutions].
Use With All Drafting Options
2. Monitoring and Audit Rights
[2.1 The [Supplier]/ [Contractor] shall [every six months during the term of this Agreement]/ [if requested by the [Company]/ [Authority]] provide proof of verified RECs or other evidence reasonably acceptable to the [Company]/ [Authority] demonstrating [compliance with the Renewable Energy Obligations]/ [that:
2.1.1 [100%]/ [at least [●]%] of the electricity supplied [during the preceding six months] to the [Supplier]/ [Contractor] was Wholly Renewable Energy; and
2.1.2 [100%]/ [at least [●]%] of the electricity supplied [during the preceding six months] to each of its subcontractors and suppliers relating to performance of its obligations under this Agreement was Wholly Renewable Energy.]
[OR]
[2.1 The [Supplier]/ [Contractor] will ensure that the Energy Supplier is obliged by the terms of the Energy Contract to submit a report to the [Supplier]/ [Contractor] [(copied to the [Company]/ [Authority])] on the Energy Supplier’s compliance with the Renewable Energy Obligations. Such a report must be submitted no less frequently than once every [six months]/ [year] for the duration of the Energy Contract. The [Supplier]/ [Contractor] shall ensure that it is permitted by the terms of the Energy Contract to provide a copy of the report to the [Company]/ [Authority].]
[Drafting note: see Zoë and Bea’s Clause for template clauses relating to reporting obligations.]
[2.2 The [Company]/ [Authority] shall have the right to audit the [Supplier]/ [Contractor], on reasonable notice, to verify that [100%]/ [at least [●]%] of the electricity supplied to the [Supplier]/ [Contractor] and its subcontractors and suppliers relating to performance of its obligations under this Agreement is Wholly Renewable Energy. The [Supplier]/ [Contractor] shall provide, and shall require that its subcontractors and suppliers provide, such information as the [Company]/ [Authority] may reasonably request to verify that [100%]/ [at least [●]%] of the electricity supplied to the [Supplier]/ [Contractor] and its subcontractors and suppliers relating to performance of its obligations under this Agreement is Wholly Renewable Energy.] [Drafting note: delete if this would be too difficult to comply with in practice.]
[3. [Compliance with the Renewable Energy Obligations]/ [Energy Contract]
[Drafting note: it may not be considered necessary to require such terms to be included in the electricity supply contract and this may be difficult in practice.]
3.1 The [Supplier]/ [Contractor] shall ensure that the Energy Contract:
3.1.1 Requires the Energy Supplier to comply with [the Renewable Energy Obligations]*/ [clause [1]**];
* [Drafting note: for Drafting Options B and C.]
** [Drafting note: for Drafting Option A.]
3.1.2 Enables the [Supplier]/ [Contractor] to monitor and verify compliance by the Energy Supplier with the Renewable Energy Obligations and to make deductions* from the sums due to the Energy Supplier for failure to comply with the Renewable Energy Obligations [in a material way] [Drafting note: it may be more appropriate to impose deductions if the non-compliance is material];
3.1.3 Allows the [Supplier]/ [Contractor] to audit the Energy Supplier's compliance with the Renewable Energy Obligations;
[3.1.4 Contains a right of termination for the [Supplier]/ [Contractor] for repeated failures to comply;]** and
[3.1.5 Ensures that any subcontracts entered into by the Energy Supplier in respect of the supply of electricity to its customers (whether directly or via the Energy Supplier) include equivalent obligations to comply with the Renewable Energy Obligations and rights to audit similar to those set out in clause [2].]]
* [Drafting note: consider specifying that any such deductions should be passed through to the Company/ Local Authority. Also consider specifying the nature of the deductions, including whether the deductions can include or exclude punitive damages, actual damages, and/ or liquidated damages (whether a sum or periodic (e.g., daily) amount).]
** [Drafting note: consider deleting if too severe, but consider the alternative of making such right exercisable by the [Company]/ [Authority] under the Contract, rather than by the [Supplier]/ [Contractor] under the Energy Contract.]
4. Equivalent Provisions for [Supplier’s]/ [Contractor’s] Subcontractors and Suppliers
The [Supplier]/ [Contractor] shall use its reasonable efforts to ensure that its contracts with subcontractors and suppliers that relate to performance of its obligations under this Agreement contain provisions equivalent to clauses [1-3].
Definitions
[Contract Price means the total price payable by the [Company]/ [Authority] to the [Supplier]/ [Contractor] under the Contract.]
[Drafting note: use if not defined in main agreement.]
Energy Contract means the contract for the supply of electricity [for use in the Contract] to be entered into by the [Supplier]/ [Contractor] with the Energy Supplier.
Energy Procurement means a competitive bidding process for the supply of electricity to the [Supplier]/ [Contractor] [required in relation to [supplying the goods, materials and/ or services to the [Company]/ [Authority]/ [performance of the Contract]]* by the Energy Supplier.
Energy Supplier means the successful bidder under the Energy Procurement who enters into an Energy Contract with the [Supplier]/ [Contractor].
Non-Renewable Solution means a bid that is not a Renewable Solution.
Renewable Energy Certificate (REC) means an instrument that represents the property rights to the environmental, social, and other non-power attributes associated with the generation of 1 megawatt-hour (MWh) of Wholly Renewable Energy.
Renewable Energy Obligations means the obligations to ensure that:
(a) ([100%]/ [no less than [●]%] of the electricity to be supplied to the [Supplier]/ [Contractor] under the Energy Contract [for use in the Contract]* will be Wholly Renewable Energy; and
(b) The Energy Supplier will provide [evidence]**, satisfactory to the [Company]/ [Authority], that such electricity is Wholly Renewable Energy.
* [Drafting note: delete this bracketed text if it would be difficult for parties to effectively monitor and ring-fence electricity required to perform the Supply Contract (e.g. if a Supplier/ Contractor has a head office or IT department covering multiple contracts and customers). There may be some contracts where the use of electricity can be ring-fenced in this way, but this would seem to be the exception rather than the norm. Without the bracketed text all of the Supplier’s energy must come from a certain percentage of renewable sources, not just the energy required to perform the contract.]
** [Drafting note: consider specifying what constitutes ‘evidence’. The strongest example here would be providing copies of Renewable Energy Certificates (RECs), which are available to the Energy Supplier, as proof that the Renewable Energy Obligation has been met.]
Renewable Solution means a bid to enter into an Energy Contract that would comply with the Renewable Energy Obligations.
Wholly Renewable Energy means energy sourced only from renewable energy sources (as defined in the applicable law and regulations from time to time), including without limitation wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, [hydropower]*, biomass, landfill gas, sewage treatment plant gas and biogasses [and energy sourced from batteries that was wholly generated by such renewable non-fossil energy sources and stored in such batteries].**
* [Drafting note: hydropower commonly involves a base load of non-renewable energy to fill lakes (cheaply). Power can then be released into batteries and stored. To be considered whether hydropower is (or should be regarded as) 'wholly renewable' in this context.]
** [Drafting note: consider including reference to energy sourced from batteries. As renewable non-fossil energy sources do not generate energy consistently, it may be the case that renewable energy generated is stored in batteries until such time as it is required to be used.]
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