Renewable Sales Rocket

The purchase of corporate renewable power rose to record-breaking levels in 2018, with data from Bloomberg New Energy Finance (BNEF) showing that companies around the world bought 13,400 MW of clean energy, more than twice the previous record of 6,100 MW set in 2017.

“We have seen more interest than ever before, not just in terms of total capacity, but there are also a higher number of first-time buyers than previously,” says Kevin Haley, who until recently was manager of the Rocky Mountain Institute’s Business Renewables Center, now director of the Renewable Energy Buyers Alliance, which helps corporations to procure clean energy.

Companies increasingly recognize the business value in sourcing sustainable energy to lower their carbon footprint. It has become an important business strategy because it is something that investors, customers and employees want to see.

A changing landscape

There are a number of reasons behind this growth in corporate procurement. The Paris Agreement on climate change, in which 195 countries committed to try to limit average temperature increases to “well below 2°C”, set the scene for concerted action by governments around the world.

At the same time, more companies are publicly committing to procure renewable energy or reduce their carbon footprint through initiatives such as RE100 and Science Based Targets, while 100% clean energy targets have also been set by U.S. states and cities including California and the nation’s capital, Washington, D.C. At a national level, too, governments have visions of similar sustainable goals – the Netherlands has set an energy agenda that will work towards achieving 100% sustainable energy by 2050.

This combination of greater regulatory certainty and increased demand has coincided with a change in the way governments have supported renewable energy. There has been a shift from support schemes such as feed-in tariffs – which focused more on increasing capacity than cutting costs – to auction-based policies that encourage greater competition and drive down prices.

The impact of new developments

Ongoing technological advances have seen the cost of wind and solar power, in particular, fall to record low levels. “Affordable wind and solar costs have really enticed companies to look for renewable energy,” Haley says.

Renewables are now the most competitive form of new energy in most markets. As renewable power has become as cost-effective and, in some cases, cheaper than fossil fuel plants, there has increasingly been adoption based purely on economic reasons.

The costs of solar PV modules are down 84% globally since 2010, while wind turbine costs are down 32% over the same period, BNEF found in its 2018 New Energy Outlook. Costs in the emerging battery storage sector are following a similar trajectory.

Many of the issues associated with the intermittent nature of wind and solar are being overcome, allowing renewable projects to offer a range of energy services such as demand response, frequency modulation and peak shaving.

Many utilities have created Green Tariffs in response to the growing demand for clean energy, with around a quarter of new corporate clean energy purchases coming via Green Tariffs.

Corporate demand is also leading directly to the creation of new renewable energy projects. Haley says: “Some 20-25% of all new renewable capacity in the U.S. is being backed by corporate entities. New projects are being financed due to this backing. If those companies were not doing that, we would see significantly fewer renewables coming onto the grid.”

Are markets ready to expand?

To date, the corporate market for renewables has been dominated by the U.S. and Nordic regions, which comprised 80% of sales to July 2018. However, Haley says that other markets are starting to take off.

“Europe and China are very interesting and there are a lot of opportunities in Australia and Canada, while India and Japan are on our radar as places where interesting things are about to happen.” India, in particular, has set an ambitious 175 GW renewable capacity target by 2022 and has made significant strides in recent years through solar energy generation.

Although market momentum continues to grow, policy barriers remain in some markets.

“In some markets, corporations are not allowed to procure renewable energy directly,” says Haley. “However, we’re now seeing more companies talking to governments, asking them to open up markets. There is more understanding from policymakers in places like China and Japan that companies are serious about this, and that it can be a win-win for companies and the country.”

While the first few years of corporate clean energy procurement were dominated by large tech and IT-focused companies, in part because their data centers use so much electricity, buyers are now coming from other sectors, too.

“Renewables adoption is spreading to other sectors including even some surprising areas like heavy industry,” says Haley.

Indeed, it is now common within this most energy-intensive of industries for organisations to sign bilateral PPAs with hydro generators, given the proven track record of hydros delivering reliable, clean, low-cost power.

“Looking forward, as purchasing options increase and transaction complexity and risk is decreased, we believe there will be new buyers from every sector of the economy procuring renewables to capture the benefits of low-cost power, reduction of ‘scope two emissions’, and meeting customer and investor expectations around sustainability.”

Companies signed up to RE100 will need to buy an additional 190 TWh of clean electricity in 2030 to meet their targets, BNEF estimates. If this energy were to come from offsite solar and wind PPAs, it would catalyze an estimated 102 GW of new solar and wind build globally, more than the U.K.’s entire power generation fleet in 2017.