As the price for renewable energy falls, it becomes competitive with traditional sources of electricity, driving the convergence of the renewable power and traditional, fossil fuel-based power markets. This equilibrium is making renewable energy increasingly available while also complicating traditional energy procurement and management.
In the final part of this three-part Q&A, market experts at Schneider Electric respond to some of the most common questions we receive about energy convergence, focusing on addressing those still not sold on the idea of corporate renewable energy. To begin with common questions about what renewable electricity options are available to corporate buyers, read part I, and for key considerations for companies exploring renewables, read part II.
Part III: I'm still not sold on this idea - why should I get serious about renewable power
You’re not alone. Although renewable penetration on the grid is increasing, and more companies are purchasing renewable energy than ever before, integrated energy sourcing has still only been adopted by a minority of corporations. There are compelling reasons to consider renewables, though—even for the most dubious of skeptics.
Aren’t renewables just propped up by subsidies? Won’t the cost go back up when subsidies are no longer available?
It is true that renewable energy growth has been bolstered by subsidization. However, at scale, renewable prices have reached parity with traditional energy sources in many markets, and the price for renewables is projected to continue to fall. As has been widely reported, unsubsidized hydropower, wind power and solar power are now three of the cheapest energy sources worldwide, surpassing the price for coal and challenging even the low price of natural gas for market dominance.
This price parity explains the proliferation of renewable power growth in the past decade, which has now reached one-third of generation globally.
It is notable that renewable energy is not the only power source that has benefitted from subsidization. A 2019 report from the International Monetary Fund (IMF) found that 6.3 percent of global GDP in 2015 was to subsidize fossil fuel consumption. China and the U.S.—not coincidentally two of the largest carbon emitting countries—each spend billions annually to subsidize traditional power.
Why shouldn’t we just wait until our government mandates renewable power for everyone? Why should we act now?
Like other commodities, energy benefits from market competition. Competition fuels research and development that improves the efficiency of clean technologies. It benefits corporate buyers by creating competitive tension among project developers. And it encourages buyers to act to preserve and promote their reputation.
While regulation can drive greater renewable penetration—as demonstrated by European countries in particular—it can be slow and inflexible. Free market forces move faster and provide greater opportunity.
Regulation is also hard to predict. Right now, we know that renewable prices are falling, and so energy procurement is, by necessity, becoming more integrated. There are great opportunities to act on renewable power across the world. Future regulation, while increasing renewable energy generation in total, could potentially impact market dynamics in ways that are not necessarily beneficial to companies.
There is also the opportunity, now, for companies to lead on their adoption of renewable power and an integrated sourcing strategy. Leaders in this space have seen many benefits, ranging from the ability to save money to improved shareholder performance and reputation. By staying out of the integrated sourcing game, companies risk falling behind their competition or being called out by others in their space or by their investors or consumers.
Do my customers and other stakeholders really care about renewable energy?
In short, yes. Growing concerns over the economic and health impacts of climate change (such as flooding, wild fires, and poor air quality) are leading to greater interest in corporate behavior on carbon reduction than ever before.
Consider some recent examples.
- Amazon’s employees’ shareholder resolution on climate change. Although the resolution failed, it is certain to trigger a cascade of other employee actions inside companies that aren’t doing their part to reduce carbon emissions. Further research demonstrates that both Millennial employees and female employees are more likely to seek employment with a sustainable company.
- Investor interest in, and action on climate change mitigation, is increasing, following BlackRock CEO Larry Fink’s annual 2018 letter calling for stronger corporate action on impacts to the common good. Shareholder group Climate Action 100+, with more than $32 trillion in assets, is motivating climate action at some of the largest companies—including Shell.
- A 2018 research report from Nielsen shows that consumers prefer sustainable products. For instance, the report found that sustainably produced and marketed chocolate outpaced regular chocolate sales by a factor of x5.
How do I get started?
My company wants to move forward with an integrated sourcing strategy that includes renewable power. What should we do now?
What are my next steps?
A good first step is to determine what you are trying to accomplish with your pursuit of renewable power and an integrated sourcing strategy. Do you want to save money? Reduce your carbon footprint? Hedge against market volatility? Diversify your energy portfolio? Improve your reputation?
Or maybe all five?
Here are some additional resources to get you started on the right path:
- Our 2020 target checklist can help jumpstart your progress by laying out a step-by-step approach to renewable energy procurement.
- View our on-demand webinar about global energy trends to learn more about how changes in energy markets have the potential to impact your business.
- Take a leap and set a goal with our interactive guide to energy & sustainability goal setting.
- Learn more from the collected resources on our Integrated Energy Sourcing channel.
Is there a good source of market intelligence my company can use to gather information and learn more until we are ready to act?
Schneider Electric’s NEO Network™ is an ideal place to begin. The NEO Network is a growing global community of companies accelerating the transition to renewable energy. Within NEO Network’s online platform, companies find the tools, resources, and intelligence they need to set their strategy and make procurement decisions. Members can access the library of on-demand education, connect with peers and Schneider Electric experts online or at live events, and learn more about the products and solutions they need to meet their goals.
Membership to NEO Network through our Accelerator Access program is free for all qualified companies. Learn more and join at www.neonetworkexchange.com.