Going with the wind

Published on 01/09/2020

A sense of urgency was hanging in the air back in 2015 when Mark Scoffin and the then US energy manager, David Reilly, were jolted into action. “We needed to have a major renewable electricity deal if we wanted to reach our 2020 environmental goals,” Scoffin recalls, who today is heading the Utilities Procurement department at Novartis. “We had done a couple of smaller deals before but what we lacked was a large project that would allow us to reach our target fast.” 

As the team was scouting for big ideas, two things helped them reach their goals: an organizational change within Novartis that allowed them to accelerate progress and James Goudreau, who brought extensive experience in big energy contracts. The team had specifically recruited Goudreau from the US Navy to lead the company’s climate policy and strategy as Head of Climate – a new position that allowed for managing environmental efforts in a much more holistic fashion. 

“After we had picked a buyer’s agent to support us in finding the right deal, we looked at about 150 different projects across the country,” Scoffin says. “All projects were evaluated against pre-determined criteria and the team then reduced this down to the top five projects from which we made a final call, choosing between the two preferred projects. By that time, we had Jim in the team too, who was very important in selecting the right partner.” 

By September 2017, the team was able to close what is known as a virtual power purchase agreement with North America’s largest independent, privately held renewable energy company Invenergy. As part of the deal, Novartis received renewable energy credits that helped it reduce greenhouse gas emissions by more than 220 000 metric tons per year – erasing a substantial part of the pharmaceutical company’s carbon footprint in one go.

The deal’s size and speed were made possible in part by the transformation of Novartis, which had started a few years earlier when the company organized its back office services, Novartis Business Services (NBS), and its production sites, Novartis Technical Operations (NTO), into separate global units. While the company had put a lot of weight on country organizations in the past to give them room to act independently, Novartis had started to globalize its divisions by 2014 to act more decisively when it comes to large and complex deals.

“When I joined, we were already looking at more ambitious targets for after 2020 and we knew that we would need to move away from smaller, less coordinated local actions to instead address sustainability goals with large sweeping projects,” explains Goudreau. “The creation of NBS before my arrival gave the opportunity to accomplish this more effectively than having to go to seven different divisions and negotiate with the leaders of each division.”

In partnership with NTO, NBS removed barriers and empowered Scoffin and Goudreau’s team to move forward with their ambitious proposal.

Before recruiting Goudreau, Scoffin and his collaborators had determined that a virtual power purchasing agreement (VPPA) was the best option for achieving their goals. Through these complex purchasing agreements, corporations can support the construction and maintenance of a new renewable energy facility by committing to a guaranteed price from that provider for a fixed number of years. 

This is an increasingly successful and well-established model for promoting green electricity, especially in the United States, where the market for renewable energy resources has advanced rapidly over the past several years. Having spent a year researching their strategy and approach, the team was ready to move forward. But they needed to bring in someone who had experience with preparing such a massive deal. 

“When I interviewed for the job, the discussion hinged around the fact that Novartis needed to establish a VPPA,” says Goudreau. “By the time I left my position in the Navy, we were just about to put 1.2 gigawatts of production capacity into the Navy and Marine Corps procurement pipeline for a number of bases all around the world – so I was familiar with how to do VPPAs.”

With Goudreau on board, the team began sifting through the 149 project proposals that their buyer’s agent had collected. The proposals included on-site and off-site solutions, as well as a range of renewable energy sources such as solar and wind. Taking into account all the criteria and requirements of Novartis, it took the team another full year to whittle down the list of proposals, but one type of renewable energy stood out from the beginning. 

“We very quickly saw that the fastest and easiest way to scale this would be a country-wide wind deal,” explains Scoffin. “At that time, wind farms were the most prevalent and most developed option in the United States.”

In August of 2018, Novartis announced their VPPA deal with Invenergy to create 100 megawatts of renewable energy generation as part of a new 123-turbine wind farm in Texas and to receive renewable energy credits for all the electricity produced there over the next 12 years. Invenergy had already partnered with over a dozen companies such as MGM, Merck and Facebook, and they had unique experience in finding creative solutions for corporate customers. 

“Up until VPPAs became available, companies could purchase renewable energy certificates to meet their energy goals, but they had less certainty about the types of projects they were supporting,” says Chris Orzel, Director, Origination at Invenergy. “Now, our corporate partners can directly contribute to building new wind farms, or other renewable energy facilities, and it’s really the VPPA structure that enables companies like Novartis to help bring these projects to life.”

The Santa Rita East wind farm went online in 2019 and, just in the first three months of 2020, the investment by Novartis has reduced over 69 000 metric tons of carbon dioxide emissions and generated enough electricity to supply more than 125 000 US homes.

Having successfully established one VPPA, the team has now moved on to reach the Novartis sustainability goals in Europe. Like for the United States, the first step has been a detailed, months-long search for a new buyer’s agent – a critical resource for understanding and analyzing the European regional energy markets. From there, they have big plans for their next VPPA. 

“A year ago we were still trying to convince ourselves that it was even possible to do a PPA in Europe,” says Scoffin. “Now, the deal we have planned will be by far the single largest corporate VPPA made in Europe.”

That said, compensating for the US and European operations of Novartis is another substantial piece of the company’s broader goal of becoming carbon-neutral in its own operations by 2025. Beyond this, Goudreau and Scoffin are also laying the groundwork for the 2030 target of Novartis to reduce the carbon footprint of all operations by half – including some of the more than 130 000 external suppliers of Novartis. Over 80 percent of the overall footprint of Novartis comes from independent suppliers around the world who provide essential services such as transportation, packaging and critical pharmaceutical ingredients. After the European VPPA, the next goal will be to bring sustainable solutions to as many of these partners as possible. 

“We plan to create another round of VPPAs in Europe and the USA that will offer an aggregated opportunity for our key suppliers that removes the barriers they have in accessing renewable energy,” says Goudreau. “Nobody else in Pharma has done that yet – nobody even across different market sectors has done that – but that’s what we aim to do next.”

Partnerships for sustainability

The move, although still in the works, reflects in many ways the rapidly changing culture at Novartis in which the company is putting increased focus on its environmental impact and its effect on society at large. While part of this includes big, all-encompassing deals, it also entails being active in the community.

Novartis teams recently reached out and surveyed all of their suppliers in India to better understand the barriers to employing sustainable solutions. The team invited key suppliers to a workshop presenting a range of renewable energy options and they are now researching models through which Novartis can partner with suppliers to make these solutions more accessible. 

More locally, in 2019, Novartis also joined the Environmental League of Massachusetts Corporate Council, an alliance of leading environmental advocates and nearly two dozen corporate partners throughout Massachusetts. The Council is dedicated to continuously improving environmental practices and policies in Massachusetts and more broadly across the United States. This includes lobbying for a state law that targets reaching net-zero emissions by 2050 and climate-related legislation on mass transportation and climate resilience. Novartis has also signed the Science Based Targets Initiative, a collaboration between the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature. 

“The effects of climate change are impacting us as a company, our patients and the communities our associates live in every day. As a global corporate citizen, Novartis is fully aware of its responsibility to offer its patients, shareholders and the global community a sustainable development path by supporting renewable energies,” says Goudreau. “Our mission at Novartis is to discover new ways to improve and extend people’s lives and that includes helping to combat climate change.”