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New drivers of the renewable energy transition

New drivers of the renewable energy transition

Part 1: The impact of increasing demand for renewables from corporate consumers

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Aerial view of solar power plant.

A game changer is underway in the world’s renewable energy sector.

Up until now, the renewable revolution has been led by energy developers and generating companies who were able to build renewable capacity with the help of government tariffs and subsidies. In many cases, the cost of this government support was passed on to consumers as part of the final electricity charge. There is broad consensus that renewables were vital for the global transition to a low or zero-carbon economy, and the consumer should help pay for this transition, with the investment in renewable generation being the first stage of that journey.

We are now seeing something completely different — consumers themselves are looking for ways to become 100 percent renewable in the energy they use and are considering the use of alternative technologies and solutions to address the low-carbon challenge. This is most obvious in the case of a growing number of global corporations who want to be part of, and indeed control, this transition. This trend is reshaping how energy markets will function in the future.

Change drivers for corporations

The main factors driving corporations to adopt renewables include the following:

  • Declining prices: New consumer demand for renewables is encouraged by a steady decline in the overall costs of wind and solar. 
  • Investor pressure: The growing emphasis around ‘responsible investment’ is driven by the recognition that environmental, social and governance (ESG) factors play a key role in determining risk and return while also supporting the investors’ fiduciary duty to their clients.
  • Customer and employee pressure: Today's customers want to feel good about the companies they do business with.1
  • Changes to information reporting standards: Under ‘true value accounting’ principles, corporations are being asked to identify and quantify the financial impact of climate-related risks in their organization and to outline the potential threats and opportunities to their own stakeholders through appropriate financial disclosure.
  • Industry peer pressure: The impact of peer pressure within an industry to support renewables cannot be underestimated. We are well aware of the requirement for greenness from the software sector and in particular the desire to be associated with additional green power.
  • Other: Many corporations are focused on signing up to standards such as the UN Principles for Responsible Investment and the UN's Sustainable Development Goals. Transitioning to 100 percent renewables is an ideal way of helping these agendas.

Different delivery methods

Energy providers have developed two methods for delivering power to their corporate consumers:

  • Synthetic PPAs where the power is delivered via the existing power grid but at a price negotiated with each corporation.
  • Direct-wire solutions where a renewable solution is provided on-site, resulting in much lower transmission costs. These solutions can include rooftop or ground-mounted solar installations, small wind turbines, and solutions involving biomass, combined heat and power (CHP) systems, or batteries.

Green premiums

Corporations are not necessarily experts in renewable energy, but they often have to engage with multiple renewable providers or contractors to develop a solution that fits their needs. The most pressing issue is usually determining a price that works for both the generator and the corporate consumer. Simply put, green energy costs more in many countries, and corporations must be willing to pay a ‘green premium’ for renewables.

Looking beyond

For utilities, the trend toward renewables and more distributed energy solutions is definitely a cause for concern. It will be interesting to see how utilities respond to this development. They might well become part of highly complex energy platforms in the future that include multiple energy sources, producers, distributors and consumers.

In any case, the renewable revolution is well underway, and with the support of corporate consumers, there is now no going back.

Source

1 5 reasons why sustainability and social issues attract customers, Entrepreneur, https://www.entrepreneur.com/article/287301

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