Why Companies Are Buying Renewable Energy
Corporate organizations are among the biggest buyers of renewable energy. According to PricewaterhouseCoopers’ June 2016 survey, an estimated 72 percent of companies are actively buying renewable energy. The survey also found that around 63 percent of companies “have become more inclined to purchase in the last six months.” Approximately 85 percent of companies that made a previous acquisition planned to increase their renewable energy purchases in the following 18 months.
Buying renewable energy offers several business benefits. First, renewable energy helps businesses reduce their consumption of resources such as fossil fuels and water. As a result, they may see savings on utility bills. Second, renewable energy lowers companies’ greenhouse gas (GHG) emissions. This can provide a reputational boost as consumers and other stakeholders recognize them as businesses that are concerned with the community’s wellbeing. Third, buying renewable energy enables companies to stimulate the economy. In 2016, the World Bank claimed that every USD1 million invested in the US wind and solar energy sectors yields about 13.5 jobs. In addition, every USD1 million spent on energy efficiency retrofit projects generates 16.7 jobs. More new jobs translate to higher consumer spending, which is beneficial to businesses.
Renewable Energy: A Response to Changes in the Economy and Government Policy
Developments in the economy and government policy are driving companies to buy renewable energy:
- Growing Electricity Demand – As companies become more automated or software-driven, their electricity consumption increases. According to the US Energy Information Administration’s (EIA) International Energy Outlook 2016, global energy consumption is expected to rise by 48 percent between 2012 and 2040. Most of this demand will most likely be addressed by fossil fuels. BP’s 2017 Energy Outlook predicts that oil, gas and coal will produce at least 75 percent of the world’s energy supplies in 2035.
Fossil fuels are finite resources, however. Experts believe that if current consumption rates continue, the world’s oil reserves will be depleted by 2052. Depleted oil reserves can lead to power shortages that will disrupt business operations. Buying renewable energy safeguards companies against this scenario. With renewable energy, companies can maintain a reliable source of electricity despite possible fossil fuel shortages.
- Fluctuating Fossil Fuel Prices – Fossil fuel prices are volatile, making it difficult for companies to accurately budget their electricity expenses. In some cases, fossil fuel price increases cause companies to incur additional costs over their budgets. Renewable energy, in sharp contrast, has more stable prices.
- Lucrative Financial Incentives – Governments are resorting to lucrative financial incentives to encourage organizations to use renewable energy, ranging from generous state subsidies for renewable energy projects to tax credits for producing and selling electricity from renewable sources. For some companies, these incentives can lead to billions of dollars in savings.
- Growing Stakeholder Pressure – Consumers and other stakeholders expect companies to become more sustainable, which explains why companies have made public sustainability commitments such as joining RE100 and signing the United States Conference of Mayors pledge. Buying renewable energy is an effective way for them to live up to their public sustainability commitments. When companies are doing something to improve their sustainability performance, they earn the trust and respect of consumers and other stakeholders.
How Companies Buy Renewable Energy
Companies buy renewable energy through various methods:
- Green Tags – Green tags (also known as renewable energy certificates, renewable energy credits and renewable electricity credits) are environmental credits that an individual or organization receives for building a renewable energy facility. According to the US Environmental Protection Agency (EPA), a green tag “represents the property rights to the environmental, social and other non-power attributes of renewable electricity generation.” It is given out when a renewable energy resource creates and delivers 1 megawatt-hour (MWh) of electricity to the electricity grid. A green tag can be sold or traded―an individual or organization who buys one can then claim to have bought renewable energy.
- Onsite Renewable Energy Systems – Another popular method of buying renewable energy is investing in onsite renewable energy systems (usually solar). Households and companies have renewable energy equipment installed on their premises. The installed renewable energy equipment gathers and stores energy, which households and companies use for their electricity needs. Companies that invest heavily in renewable energy systems include Apple, BMW, Coca-Cola, Google, IKEA and Walmart.
- Power Purchase Agreement – A power purchase agreement (PPA) is a contract between a renewable energy seller and a renewable energy buyer. There are two types of PPAs: physical and virtual (also known as financial). In a physical PPA, the seller builds, operates and maintains a renewable energy facility. The renewable energy facility’s output is then physically delivered to the buyer, who takes legal rights to the renewable energy facility’s output.
A virtual PPA does not physically deliver renewable energy to the buyer. Rather, the seller produces renewable energy, which it sells to the wholesale market. Entities in the wholesale market, such as distributors, buy the renewable energy from the buyer for a fixed amount and for a set period of time. Distributors then sell the renewable energy to end users. Under a virtual PPA, the buyer does not have legal rights to the renewable energy facility’s output.
Future Trends in Renewable Energy Purchases
As individuals and organizations become increasingly aware of the benefits of renewable energy, new trends are emerging:
- Entire Countries Shift to Renewable Energy – Environmental issues such as climate change and pollution are driving countries to rely on renewable energy for most, if not all, of their energy needs. In April 2017, the UK succeeded in producing electricity without coal for 24 hours. During this period, the country derived its electricity from other sources like solar, wind, nuclear and gas.
China has focused on renewable energy as a response to its air pollution problem, which is reported to have killed at least 1 million people every year. As a result, the Chinese government announced in January 2017 that it will invest 2.5 trillion Yuan (USD493 billion) in renewable energy by 2020. Renewable energy will help reduce China’s dependency on fossil fuels and address its air pollution problem.
- Affordable Renewable Energy is Available for Low-Income Communities – Renewable energy is an effective and sustainable way to bring electricity to low-income communities. With renewable energy, there is no need to buy coal or kerosene, or to spend hours searching for firewood or animal dung for heat and cooking. Instead, they can have electricity access while also investing their time and money on other activities.
In June 2017, Simpa Networks launched Magic TV―India’s first satellite television service running on solar energy. For USD390, consumers can take advantage of a television service package that includes “a 20-inch LED television with over 100 free-to-air channels, a powerful battery, a solar charge controller and three LED lights.” In India, approximately 300 million people live without access to electricity. With Magic TV, this hurdle is overcome in allowing ordinary Indians to receive information through television.
- The Energy Storage Market Grows – As renewable energy use becomes more widespread, there will be a need to ensure reliable access. Energy storage systems such as batteries can capture and store excess energy on sunny or windy days for future use.
Batteries are an important tool in California’s aggressive goal of deriving 50 percent of its electricity from renewable sources by 2050. In 2013, the state came up with a target of 1.3 gigawatts of energy storage by 2020. By 2017, about 36 percent of the US’ battery storage capacity is in California. California is able to ensure that its access to renewable energy is reliable by investing in renewable energy storage.
Buying Renewable Energy Benefits All Sectors of Society
Companies buy renewable energy primarily because it benefits their business. Renewable energy safeguards companies against fluctuating oil and electricity supplies and prices, and helps them reduce their resource consumption. Further, buying renewable energy establishes companies’ reputations as institutions that care for the public welfare.
As other sectors of society start buying renewable energy, other benefits of renewable energy will become more pronounced. For governments, buying renewable energy can help reduce pollution. For communities, buying renewable energy can eliminate poverty and inequality. When all sectors of society are involved in buying renewable energy, its potential and impacts are maximized.
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