Sainsbury's signs wind farm deal

Innovative contract sees supermarket giant become first firm to buy power direct from wind farm operator

Sainsbury's has become the first company in Britain to cut out the utility middle man and sign an electricity supply contract directly with a power generator, after it agreed to take all the power produced by a new £8m 6MW wind farm to be built near Glasgow.

Sainsbury's signed the deal last week with A7 Lochhead, a small wind farm developer backed by Ventus, a venture capital fund managed by Climate Change Capital.

Neil Sachdev, commercial director at Sainsbury's, said the deal mirrored the company's broader sustainable supply chain strategy.

"In the same way as we buy food, when we want to know its heritage, how and where it was farmed and so on, we want to be able to trace the supply of the electricity production we have bought," he said.

The company said it expects to get one per cent of its electricity needs through the deal.

Lochhead added that it was able to secure the funding to build the wind farm, which will be completed in 2009, because Sainsbury's agreed to buy the entire output in advance.

In the past, electricity has always been bought and sold through middle-men suppliers.

Under the terms of the Electricity Act of 1989, only companies with a supply licence can sell to customers, but Sainsbury's and energy risk advisors Utilyx believe they have addressed that potential barrier by involving Npower in the deal.

Alex Hensher, founder of A7 Lochhead, said such agreements presented a new approach for independent generators to get renewable energy projects off the ground, adding that there were also commercial benefits to for the power purchasers.

"With a shortage of generation capacity looming in the UK, the ability to reduce exposure to price risk by contracting directly with developers is becoming an increasingly attractive option for large energy consumers like Sainsbury's," he explained.

Last month, the retail giant announced that it is now sending all of its food waste to anaerobic digestion facilities where it will be used to create renewable electricity

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