For many in the corporate sustainability and renewable energy community, 2020 is a particularly significant milestone. An estimated 32% of Fortune 500 companies have publicly announced a renewable energy goal—many of which have targets in 2020. However, less than a third of these companies have met their targets.
The chart below from Bloomberg New Energy Finance (BNEF) forecasts a large global gap in the corporate sector’s ability to meet renewable energy goals over time. BNEF’s analysis included only the most ambitious organizations who have joined the RE100 initiative. There are inevitably many more companies that will set goals, or have goals that they have not made public, who are also aspiring to develop a strategy and procure renewable energy products around the world. And, as the age-old Economics 101 adage tells us, as demand for renewables increases, supply will decrease. Companies must keep this in mind as they chart their plans to reach their 2020 goals and beyond.
So, what does all of this mean for you?
If your company has set a 2020 renewable energy goal (or one soon after 2020), it’s time to act now.
Approaching your portfolio, practically
To make progress toward goals, companies have employed a variety of renewables procurement instruments, including power purchase agreements (PPAs), green tariffs, onsite installations and energy attribute certificates (EACs). Of commonly used instruments, EACs, are the most transactional way to procure renewables. With 2020 goal deadlines fast-approaching, there are new entrants into the EAC market and a significant increase in companies procuring readily available EACs to accelerate their progress and/or to fill in the final gap to achieve a goal.
“In the past 18 months, the market has witnessed more 'non-traditional' companies entering the renewable energy market—many whom are publicly acknowledging both the business opportunities and risks of climate change. Historically, most heavy industrial companies remained on the sidelines and observed the renewables procurement arena. Sitting back is no longer an option.” ~ David Hughes, Commercial Director, Cleantech & Renewables, Schneider Electric Energy & Sustainability Services
Companies up against 2020 renewable energy or greenhouse gas emissions reduction targets have realized that EACs and verified emissions reductions (VERs – also known as carbon offsets) must be used as part of a portfolio strategy to achieve their targets. Global corporations operating in energy markets without viable paths to onsite generation or offsite PPAs are actively sourcing EACs. Big tech companies, such as Intel and Microsoft, have been active as EAC buyers for years. And, just in the past 18 months, the market has witnessed more “non-traditional” companies enter the market--many who are publicly acknowledging both the business opportunities and risks of climate change. For example, mining company Rio Tinto recently announced a 100% renewable energy commitment at its Utah facilities through the purchase of EACs.
EACs are a critical component of a strategic approach to renewable energy procurement, and they also underpin the global tracking and trading of renewable electricity. Many corporate buyers are surprised to learn that, even in a long-term PPA, utility green power program, or green tariff, EACs serve as the mechanism to track an energy source’s environmental attributes. Even the most advanced buyers use EACs as part of an intentional, portfolio approach to achieving renewable goals.
The double-edged sword of corporate renewable commitments
Many electricity markets around the world have reached a tipping point where renewables are now competing with the more traditional sources of electricity, such as coal and natural gas. At the same time, corporate interest in the reputational and environmental benefits of adopting renewables are at an all-time high.
This convergence of trends is resulting in more clean power to be added to the grid, as demonstrated by the fact that the majority of new capacity globally comes from renewable sources. But this increase in demand also means that cost-effective and risk-mitigated renewable energy solutions, including EACs, have constrained supply in many markets.
Companies that wish to source renewable energy are advised to do so using an intentional and integrated approach that identifies not only the most cost-effective renewable products globally, but also works to mitigate exposure to price volatility in markets where they operate.
5 strategies to avoid a 2020 time crunch
With so many corporate 2020 goals looming on the horizon, competitive EAC markets could become an issue. If companies wait until the final hour to proceed with procurement of EACs, it may put enormous pressure on the market, potentially resulting in increasing prices and decreasing volumes. With demand for EACs rising and goal deadlines drawing nearer, expect this trend to continue.
Companies that get ahead of the curve will be afforded the greatest number of options at the lowest prices.
Given this reality, here are 5 recommendations for companies that desire to avoid the 2020 goals time crunch:
- Get started right away; understand your load, prioritize your markets, and be clear on your corporate position on EACs, PPAs, green tariffs, green power programs, and onsite generation.
- Perform an opportunity assessment that compares where you have load, where you still need to buy renewables, and where the most readily available solutions exist. This exercise will help you prioritize activities with the greatest impact.
- Consider longer-term EAC contracting. 3 to 8-year strip purchasing can help alleviate the pressure of annual year-end true ups.
- Be opportunistic and strategic with your EAC purchasing and buy when prices are lowest throughout the year, rather than being at the mercy of the market at the time when you most need EACs.
- Consider working with an experienced advisor with a global footprint that can help develop and implement your renewable energy and 2020 goal achievement strategy.
We welcome you to drop us a line if you have any questions about the trends and recommendations discussed in this blog. And if you’d like to explore other content designed to help companies reach 2020 renewable energy and sustainability goals, we invite you to check out our 'Prepare for 2020' content stream.