Corporate Renewable Procurement
Corporate procurement of renewables involves companies acquiring some form of renewable electricity production, usually to offset their own consumption. Over the years, many of the world’s largest companies have pledged to offset some or all of their consumption with renewables. Prominent examples include Google, IKEA, Bank of America, Coca Cola and more that want to go 100% renewable.
Why does any of this matter though? Three reasons:
- The scale - The scale of this market is humongous. For example, just Google and Facebook together consumed more electricity in 2015 than Luxembourg. Thus, moving the needle in this space has considerable implications on carbon emissions.
- Consumer facing - Many of these companies are consumer-facing. Engaging the companies in procuring renewables and broadcasting their engagement helps to maintain and even accelerate the sustainability movement.
- Competitive pressure - Having large consumer-facing companies commit to renewable energy publicly creates pressure for other companies (and other industries) to follow suit, leading to a snowball effect.
But why would a company, specialized in an entirely different sector and aimed primarily at earning profits, be interested in this area? There are three main reasons, in order of decreasing importance:
- Sustainability goals - most companies are driven by these. Many of the largest companies in the world do care about the impact they are creating and want to make a difference. Beyond that, having aggressive sustainability goals generates great PR for them and helps them in recruiting and retaining talent (particularly, millennials)
- Mitigating risk - procuring renewables (a form of distributed generation) can help reduce risk. This can be to improve resilience on-site or reduce exposure to volatile electricity prices.
- Cost savings/profit opportunity - this is the rationale corporates use least when acquiring renewables. Even though renewables are cost-competitive in many parts of the world, they are not a mechanism to make money for corporations in an electricity market they know little about.
So this is a whole lot of talk, right? What’s really been done about it? The figure below shows the corporate renewable deals completed in the US, as of September 2017. As can be seen, the market has grown significantly in the past few years and now includes firms like Goldman Sachs, T-Mobile and Anheuser-Busch InBev - all representing a variety of sectors beyond the giant IT firms that were early movers in this space.
Source: Business Renewables Center, Rocky Mountain Institute
Thus far, we have had an introduction to the corporate renewable space, why it’s important and why it exists. We will now briefly look at how exactly corporates are engaging in this space.
Corporations procure renewables in two major ways:
- Onsite - This involves corporations procuring renewables and placing them on their facilities. These renewables are usually used to offset electricity consumption occurring in the same location
- Offsite - As the name suggests, this is a term covering any renewable energy generation not occurring in the same location as the corporate facility, that is being used to offset the corporation’s consumption.
Companies elect to do onsite renewable procurement for two reasons:
- Visibility - Renewables (most commonly, solar panels) at the company’s location create a powerful image of the company’s commitment being translated into action
- Focus on locality - Sometimes corporations want the manufacturing and installation of renewables done locally, to benefit the community.
However, for almost all major corporations, onsite renewables cannot be used to offset their entire consumption just due to lack of space, and so their strategy must be supplemented by off site solutions.
While regulation around offsite solutions varies across countries, one of the more powerful instruments to enable offsite solutions in the US has been the Power Purchase Agreement. This can only take place in deregulated markets (i.e. markets where any entity can buy or sell power in wholesale and does not need to go through a utility) and involves a contract between two parties. In this case, one of the parties is a corporation and the other is a renewable energy developer (i.e. a company that develops a renewable energy project from conception to installation). Power purchase agreements are largely responsible for the explosive growth in corporate acquisition of renewables we saw in the previous figure.
This is a topic with much more depth than what is being presented here and it is a space to watch - there are a myriad of innovations occurring to satisfy corporates’ increasingly diverse needs for renewables!
If you’re interested in reading further on this topic, I’d suggest looking at reports from GreenBiz, WWF, WRI and Deloitte on this area. Also, please feel free to reach out to me at firstname.lastname@example.org for feedback, comments, questions and of course, appreciation!
By Rachit Kansal
In Collaboration with The CommUnity Post
23 January 2018