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Sep 28, 2018 | 10:00 GMT

9 mins read

Why More Global Corporations Are Betting on Renewables

Rows of solar panels are seen at a Tekno Ray Solar farm on Sept. 13, 2018, in Konya, Turkey.
(CHRIS McGRATH/Getty Images)
Highlights
  • Major global technology and other corporations are committing to the direct purchase of renewable energy to power their operations, in part due to the falling costs of renewables and a desire to burnish their environmental credentials.
  • The green turn will continue to deepen, not only creating additional demand for renewables but also encouraging smaller suppliers to work toward greater sustainability.
  • These changes will help facilitate the longer-term transition currently occurring in energy and, increasingly, in transport.
  • Despite these changes, heating will remain a longer-term challenge.

Facebook recently heralded that it will source 100 percent of its electricity consumption from renewables by 2020, representing the latest direct renewables purchase by a major global corporation. The social media site joins Apple and Google, which already power all their operations using renewable electricity. But while Silicon Valley's giants are clearly among the leaders in embracing green electricity, other industrial and commercial segments are not far behind. The materials segment, including metals, is the largest consumer of directly sourced renewable electricity. For instance, metals giant Alcoa sources 75 percent of the energy required for its smelters from renewables, while mining giant Rio Tinto acquires just under half of its energy from such sources. In telecommunications, AT&T and T-Mobile are pursuing aggressive renewables plans, and there are others on the cutting edge in retail, including Walmart, Ikea, Nike and Starbucks. Volkswagen, in turn, leads the way for renewables in manufacturing its automobiles. Other active segments include finance, health care, biotech and consumer goods. Together, such companies are leading the charge toward a greener future.

The Big Picture

The world is in the midst of a slow-moving energy revolution as it transitions away from fossil fuels. But corporations are increasingly taking the lead in this transition and complementing state policies in going green.

Jumping on the Bandwagon

More than 140 companies and counting have signed the RE100 pledge to source 100 percent of their energy from renewables. Unsurprisingly, companies in North America and Europe — particularly Nordic countries — are leading the drive for green energy, but counterparts from Asia and Latin America are beginning to join them. The United States, Japan, the United Kingdom, Sweden and Germany are leaders among wealthy countries, while South Africa, Mexico and India have blazed a trail for developing states on renewables.

According to the International Renewable Energy Agency's recent survey of 2,410 global companies that represent total revenues of $26.5 trillion, corporations were sourcing renewables in more than a third of all countries. The study also found that close to a fifth of all corporations have committed to green electricity or emissions reduction targets and that 111 companies already boast a renewables share that exceeds 85 percent of their electricity portfolios.

In these early stages of transformation, the total amount of renewable electricity directly purchased by companies still represents less than 4 percent of the commercial and industrial sectors' overall net electricity consumption. The percentage, however, is certain to expand in the future, especially as tech giants are at the forefront of the transition to renewables due to their massive data centers, which are projected to account for an astonishing 20 percent of all global electricity consumption by 2025.

A chart showing the percentage of renewable energy in the total energy consumption of various sectors.

Cost and Value

The biggest reason corporations have pursued green energy deals is the falling cost of renewable electricity. Since 2010, solar and onshore wind energy costs have fallen by 84 percent and 32 percent, respectively, meaning electricity from these technologies now costs about the same as coal and natural gas in several markets. (While offshore wind currently remains more expensive, its costs are also decreasing.)

But unlike the typical, liquidity-strapped citizen, major corporations harbor motivations beyond lowering short-term costs. For one, they believe renewables are less subject to the volatile price swings that mark fossil fuel-powered generation, making green energy a better longer-term bet. After all, the fuel cost of renewable electricity is exactly zero.

Moreover, climate action and good environmental citizenship is a key goal of most global corporations and an integral part of their corporate social responsibility profiles. Some regions even have legal mandates that encourage such actions, including California's SB 100, which calls for 100 percent renewable energy by 2045. And in the boardroom, increasingly activist shareholders who are worried about climate risk, such as major mutual funds like Vanguard, are demanding nothing less. Acquiring more green energy is an excellent way for corporate management to demonstrate this commitment to their boardrooms and stockholders; in other words, green energy represents not just a raw cost argument but also an enlightened value proposition.

Choosing a Means of Sourcing

The corporate push for renewables is generating additional demand for energy, as the green energy sourced by corporations is separate from the energy that current utility companies create and feed into the grid. Corporations source renewable energy in several ways. One is by signing long-term purchasing contracts known as power purchase agreements with renewable energy generators — typically wind or solar farms. Power purchase agreements generally last for a decade or more and are tied to a fixed tariff for the duration of the contract. Under such an arrangement, the local utility company may provide transmission services, but not the generation itself.

Alternatively, a corporation may become a renewable energy generator itself by constructing its own wind or solar farms — an approach that effectively puts the corporation into the electricity business in a circumscribed sense. (Incidentally, this raises the interesting prospect that some of these corporations could evolve into utility companies, especially if more decentralization occurs in the electricity sector.)

Other models of sourcing renewables include the purchase of renewable energy certificates, which offset the company's fossil electricity consumption through the generation of an equivalent amount of renewable energy elsewhere on the grid, or a specific contract with the local utility to generate additional renewables. Since the output from wind and solar electricity naturally varies, corporations usually mix and match more than one of these models to increase their renewables consumption.

The corporate push to go green is also spreading beyond electricity into transport.

Beyond Electricity

The corporate push to go green is also spreading beyond electricity into transport. Because most large corporations own many vehicles — often thousands of them — the fleet vehicle market represents a good opportunity to transition to electric vehicles.

Enter EV100, an initiative aimed to accelerate fleet conversions and establish workplace charging stations that employees can use to charge their personal automobiles. The initiative already counts Ikea, Baidu, Unilever and HP among its members, and Ikea has announced that it will conduct 100 percent of its deliveries with electric vehicles by 2030. The EV100 remains a fairly select group at present (just 24 companies have joined so far), but it is sure to grow.

Fleet conversion, however, still faces significant barriers. Infrastructure to recharge vehicles is thin on the ground in most countries, and the cost of electric vehicles, especially delivery trucks, remains too high to ramp up the scale of the industry. In essence, the electric vehicle market has now reached the stage that the renewables market attained around a decade ago. Nevertheless, an increased corporate push in this arena will ultimately increase demand, triggering a virtuous cycle of falling costs and growing volumes.

Thermal usage accounts for about half of the world's (and about a quarter of the United States') energy use. Typically used to heat buildings and generate process heat for industrial applications, it is also the last frontier in the energy transition. A coalition of global manufacturing corporations have recently created the Renewable Thermal Collaborative to tackle the challenge, welcoming members such as General Motors, Cargill and Procter & Gamble. Nevertheless, progress on bulk corporate purchases of electrified heating has been limited.

Boosting the Global Energy Transition

A global energy transition will play out over the next two or three decades as steadily increasing percentages of renewable energy is generated and consumed across multiple sectors and countries. The transition is most pronounced in electricity, but technological change in transport has also just begun.

The corporate push for renewables aids this transition in several ways. First, trends in the commercial and industrial sectors, which consume two-thirds of all electricity generation, set the agenda for everyone else to follow. When corporations actively seek renewable electricity above and beyond what is already supplied by the local utility, they help create greater scale in generation capacity and storage, thereby lowering the costs of renewables technologies; the same dynamic is inevitable in the transport sector. At the same time, this will also lead to several knock-on effects that act as force multipliers for the transition.

And then there is the question of promoting green approaches among smaller actors in the supply chain. Many suppliers tend to be smaller, more local enterprises that are not on the cutting edge of sustainability. Moreover, they are often based in developing countries, which have historically lagged in clean energy policies. But by sourcing renewables, and driving sustainability more generally, global corporations can apply pressure all the way down the supply chain, prompting others to embrace green approaches — something Google and Apple have already been doing.

In adopting renewables, companies also encourage national and subnational governments to, in turn, become more green friendly.

In adopting renewables, companies also encourage national and subnational governments to, in turn, become more green friendly. Because many developing nations and states in developed countries seek the visibility and economic payoffs that come from global corporations setting up shop on their soil, they are often willing to go the extra mile to attract greenfield investments. When a healthy renewables market is one of them, it facilitates such jurisdictions' policy alignment with the energy transition.

Last but not least, the corporate push for renewables has driven tech titans to embark on energy research and development initiatives. One example is Breakthrough Energy Ventures, a private-sector clean-tech innovation investment fund pioneered by Bill Gates that boasts $1 billion in funding. The fund recently invested in a storage startup it believes has a good chance of reducing the costs of energy storage by tremendous amounts.

Despite the corporate drive toward sustainability, current trends are well short of the pace required to limit global warming to 2 degrees Celsius, the threshold advocated by the overwhelming majority of climate scientists to prevent the worst effects of climate change. Be that as it may, many corporations around the world have gone all in on renewable energy, suggesting that the energy transition — as well as more innovative clean-tech products and markets — is here to stay.

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