October 20, 2021

Lion: Renewable Energy Agreement

In NSW, Lion combined the electricity demand of its largest brewery Tooheys with participating hotels of the Australian Hotels Association (AHA) to enter into a PPA with ENGIE’s retail arm, Simply Energy.

Achievements

  • The PPA also helped underpin Lion’s subsequent commitment to become a Climate Active certified carbon neutral organisation; Lion recognises having a strong track record on direct carbon reduction as the key to legitimising a push into net-zero and carbon offsets to address unavoidable emissions.

Case Study Type

  • Net zero emissions
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Introduction

In NSW, Lion combined the electricity demand of its largest brewery Tooheys with participating hotels of the Australian Hotels Association (AHA) to enter into a PPA with ENGIE’s retail arm, Simply Energy. Lion as the anchor partner in this deal legitimised the offer and provided the AHA members confidence around the commercial terms. In the simplest terms, it allowed small energy users access to PPA arrangements. In 2020, a typical hotel’s energy price dropped from 11.5c/kWh to 6.9c/kWh. The Lion partnership also helped underwrite the construction of ENGIE’s Silverleaf Solar Farm in Narrabri in regional NSW. Top tips for others • Employ an independent consultant(s) to undertake due diligence or provide guidance as commercial terms are forming. • Decide early what terms are non-negotiable and what terms are flexible within a range. • Remain open to signing a short-term retail agreement if timing for PPA is not optimal. • Ensure the broader organisation, especially finance, treasury and c-suite, are well briefed on potential outcomes and associated opportunities and risks. • Consider your supplier’s and customer’s need – an aggregated PPA can have material financial and environmental benefits.

Overview

Lion is a leading beverage company with a portfolio that includes many of our region’s favourite brands. With more than 1,500 people employed in our Australian Adult Beverages business, the company operates historic breweries, such as Tooheys and Castlemaine Perkins, and is a leader in craft brewing, with brands such as James Squire and Malt Shovel, Little Creatures, Kosciuszko, and Furphy. Lion is part of the Lion Group, a wholly owned subsidiary of Kirin Holdings.

Lion also operates a Dairy & Drinks business in Australia that employs another 4,000 people, however this business is currently subject to a sale process.

Summary of energy use

Lion Australia consumes approximately 61 GWh of electricity per year, of which 20 GWh is consumed in Qld and 20 GWh consumed in NSW; the remainder is consumed (in order of reducing load) across SA, Tas, Vic and WA.

Lion has a large solar PV installation on its brewery in Brisbane and is in the final stages of commissioning another system on its Little Creatures Brewery in Geelong.

Tooheys and breweries have biogas plants that offset natural gas consumption; Tooheys also divert the biogas to a cogeneration plant to offset grid power consumption. Lion Australia has a commitment to 100% renewable electricity by 2025.

Lion Australia is a Climate Active certified carbon neutral organisation with a strategic carbon offset portfolio, targeting shared value and building climate resilience in the Australian agriculture sector.

Procurement process

The concept was an aggregated PPA delivered with the Australian Hotels Association (AHA) and ENGIE for loads in NSW; Lion would be the anchor partner.

In isolation, Lion distributed an RFP with like-for-like terms to other retailers and a small number of gen-tailers.

Energetics undertook due diligence on the proposed contract for Lion and were responsive, pragmatic, and constructive.

Key risks

An aggregated PPA introduces additional stakeholders with potentially differing drivers and requirements leading to compromise on contract structure and terms.

Other key risks were consistent with the typical PPA risks – contract duration, supply reliability, offtake flexibility as demand fluctuates, change in law, exposure to spot price and firming arrangements.

Solution

The aggregated PPA was announced on 4 October 2019. From the Press Release:

“We are pooling our energy needs in the state, which includes our largest brewery Tooheys, together with the needs of participating NSW hotels. In 2020, this will see a typical hotel’s energy price drop from 11.5c/kWh to 6.9c/kWh – a 40 per cent saving, equating to around $18,000 a year,”

All NSW and ACT AHA members whose annual consumption is more than 100MWh per annum were eligible to receive a quote.

A 10-year contract term was negotiated, commencing 1 January 2020.

The PPA reduces Lion’s direct carbon emissions by approximately 20%.

Areas of innovation

A key point of differentiation with a standard PPA (if there is such a thing currently) was the aggregation of demand across AHA members in NSW and ACT, that is, pubs and venues. Lion as the anchor partner in this deal legitimised the offer and provided the AHA members confidence around the commercial terms. In the simplest terms, it allowed small energy users access to PPA arrangements.

The deal generated goodwill with customers by using Lion’s high-power consumption to negotiate lower electricity prices for their operations; one of Lion’s key leadership principles is “customer at the heart”.

The Lion partnership also helped underwrite the construction of ENGIE’s new Silverleaf Solar Farm in Narrabri in regional NSW.

Outcomes and lessons learnt

The PPA announcement received positive and widespread media coverage largely due to the unique arrangement with the AHA and its members.

Internally, this PPA was the first peg in the sand for Lion’s 100% renewable electricity commitment and allowed an opportunity to educate our people on the importance of renewable electricity as a key contributor to carbon abatement.

The PPA also helped underpin Lion’s subsequent commitment to become a Climate Active certified carbon neutral organisation; Lion recognises having a strong track record on direct carbon reduction as the key to legitimising a push into net-zero and carbon offsets to address unavoidable emissions.

While Lion is procuring 100% of LGCs from this PPA to claim renewable electricity and reduce scope 2 emissions; this was an optional component for AHA members. The underlying requirement for the AHA was to reduce power price and volatility for their members in NSW and ACT; there was a general sentiment that overlaying an additional option of ‘green electricity” may have muddled what was already a challenging concept to communicate to customers and ultimately detract from the offer’s appeal. The number of stakeholders involved, with varying motivation for the deal, and tight timelines, also made the task of aligning on a green option especially challenging.

In hindsight, agreeing early in the process that a green option must be part of the offer, or gauging interest from the AHA membership for 100% renewable electricity, may have led to a greater uptake of renewables in pubs and venues (and a reduction in scope 3 for Lion).

Top tips for others

Employ an independent consultant(s) to undertake due diligence or provide guidance as commercial terms are forming.

Decide early what terms are non-negotiable and what terms are flexible within a range.

Remain open to signing a short-term retail agreement if timing for PPA is not optimal.

Ensure the broader organisation, especially finance, treasury, and c-suite, are well briefed on potential outcomes and associated opportunities and risks.

Consider your supplier’s and customer’s need – an aggregated PPA can have material financial and environmental benefits.

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