Market Insights

Corporate mandate for clean energy generation

corporate renewable energy. PPA, REC, power purchase agreement, renewable energy certificates, green tariffs, Marie Christine Bluett, South Pole Group, Melanie Wilneder, corporate management clean energy, USA clean energy, UN Sustainable Goals

Today, renewable energy procurement or generation plays a major role in corporate strategies. Industry experts and legal practitioners explain why clean energy generation is a core corporate mandate today, and the economics behind corporates in clean energy generation.

What is renewable energy procurement and why are corporates enticed by it?

One of the biggest developments in the renewable energy marketplace in the past few years has been the rapid growth in corporate renewables purchases, despite the renewable energy market being traditionally dominated by utilities. Historically, in regulated markets, companies did not have much of a choice over where to source their energy.

However, the externality cost of high carbon energy is becoming increasingly obvious to corporates and stakeholders are pushing the shift towards renewable energy on all fronts. Increasingly stringent climate change-related reporting requirements of emissions are driven by legislators and investors demanding both transparency and real action. Customers and employers are also demanding sustainable products, even at B2B level where the focus is more on reputation and reduction of supply chain emissions (Scope 3 emissions) for a buying company.  On the other hand, businesses have come to realise that renewable energy also offers various long-term sustainable benefits, as it allows companies to meet their CSR commitments, such as the UN Sustainable Development Goals (SDGs), or pledges to specific initiatives such as the RE100 or the Renewable Energy Buyers’ Principles.

Practically speaking, from a procurement perspective, rules on renewable energy procurement are becoming increasingly more standardised across the globe, making it easier for CSR representatives to work with their in-house energy buyers. There are a variety of options in both unregulated and regulated markets.

How is it good business sense now to invest in clean energy? Aside from being an environmentally sound move, does it augur well for a company’s profit margins?

Despite ongoing fossil fuel subsidies – which are being more and more scrutinised for phase out, backed also by the vocal divestment movement – and plunging fossil fuel prices, renewable energy is becoming increasingly cost-competitive. This is a result of billions of investments during the last years, combined with an increasing corporate demand. In the year 2015 alone, 154 GW of renewable energy capacity was added to the global market.

Renewable energy deals as “green tariffs” are available at or even below standard non-renewable energy tariffs, and often offer long-term fixed rates. This is economically beneficial for energy-intensive and growth-oriented companies, such as industrial and consumer goods, as it allows for better forecasting of production costs.

Wherever possible, companies have chosen to opt for on or near site installations that are directly grid-connected to their premises or production facilities. Where unfeasible, power purchase agreements (PPAs) can offer a good alternative from a cost perspective for high volumes of consumption: PPAs represent direct contracts with electricity generators, covering all relevant terms for delivery of electricity, and can last up to 20 years, providing long-term security of energy at a fixed cost.

Finally, where on- or near site installations or PPAs are not feasible, Renewable Energy Certificates (RECs) are a legitimate, reportable, and accessible way to purchase green electricity to compensate for residual fossil fuel emissions under a standard energy tariff. RECs are available under national tracking schemes such as ‘RECs’ in North America or ‘Guarantees of Origin’ in Europe, as well as I-RECs in regions without national tracking systems. It is worth noting that RECs are traded separately from the underlying, produced electricity. In other words, green tariffs always include the cost of the utility having to purchase RECs separately from the renewable plants that they contract with, even though this will not show up on the invoice.

Aside from being an environmentally sound move, investing in renewable energy by purchasing RECs not only augurs well for a company’s profit margins but can also support the global sustainable development agenda: RECs can be purchased from plants near a company’s own operations, and their purchase encourages green power developers to build new facilities while creating jobs and sustainable livelihoods. Therefore, a company can also link their acquisition of renewable energy to their SDG goals.

Can you tell us how the corporate clean energy goals are aligned with UN’s Sustainable Development Goals?

The growing demand for renewable energy is also driving supply, which is directly aligned with SDG 7 “Affordable and clean energy”, as well as indirectly with other SDGs. For instance, efforts to encourage clean energy has resulted in more than one fifth of the world’s power being generated by renewable sources in 2011. Still, one in five people lack access to electricity, and as demand is rising continually, there needs to be a substantial increase in the production of renewable energy across the world.

As for other SDGs, renewable energy plants contribute to many of the other goals by creating jobs, which in turn contribute to reducing poverty (SDG 1) and providing decent work and economic growth (SDG 8). By their nature, the plants also contribute to industry and infrastructure (SDG 9), sustainable cities and communities (SDG 11), and climate action (13).  Where they directly replace polluting plants, they can also contribute to SDGs 3 ‘Good Health’ and 6 ‘Clean Water’.

Is it incidental that largely American companies are championing the cause of corporates in clean energy generation? Why is this so?

Within the renewable energy space, large American corporations have recently received a great deal of positive press for their renewable energy commitments and actions.  Many of the renewable energy leaders are multi-nationals with global manufacturing, who look at renewable energy as a way to reduce their global cost base, secure supply in the long term and minimise risk, as well as contribute to the communities they are part of.

While renewables accounted for 13% of the U.S’s electricity generation in 2014, the top three countries leading the transition to renewable energy are, at present, Sweden, Costa Rica, and Nicaragua. In addition, it is increasingly the developing countries that are taking the lead in pursuing green energy investments to build their future energy infrastructure. For instance, Bangladesh serves 25mn people with solar energy, while India is planning to power 18 million homes with solar by 2022.

Given that it is a new space, how can the industry benefit from best practices and more importantly, who is qualified in guiding companies to make the most strategic and productive moves towards attaining their clean energy goals?

For a global company operating in many countries, creating and implementing a robust renewable energy strategy can be a daunting endeavour. The best way to get started is to assess the status quo in-house for the entire global operations, i.e. identify the current contractual agreements in place. Luckily, there are already service providers with global capabilities who can map out the journey towards 100% renewable energy country by country.

The growth of the renewable energy marketplace during the last years has been remarkable.  Companies should not miss out on the opportunity to secure their energy supply in the long term while contributing to their CSR goals and living up to their global pledges.

Melanie Wilneder, key account manager, South Pole Group Marie Christine Bluett, head of renewables portfolio management, South Pole Group

 

 

 

 

 

 

 

 

Inputs by Marie Christine Bluett, head of renewables portfolio management, South Pole Group & Melanie Wilneder, key account manager, South Pole Group. You can read the interview here

 

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