Companies across the globe are facing a 5-month window to achieve their 2020 renewable energy goals. To help corporate leaders prepare for this milestone year and act quickly to achieve their ambitions, we sat down with David Hughes, Commercial Director of Renewables and Cleantech at Schneider Electric Energy & Sustainability Services.
David Hughes, Commercial Director, Renewables & Cleantech
David Hughes has a deep understanding of the common challenges facing corporate professionals and been engaging and advising corporations on their renewable energy and sustainability objectives for over a decade.
What’s happening right now in the global renewable energy market?
An increasing number of companies have set ambitious targets to reduce carbon emissions through renewable energy procurement in the past few years – both through independent action and through globally-recognized commitments such as RE100 and the Science-Based Targets Initiative. Many of these companies have strategically entered long-term power purchase agreements (PPAs) or used onsite installations to meet these commitments. However, as we rapidly approach 2020, we’re seeing that companies still have a way to go to achieve their goals – a scenario we refer to as the “ambition gap”.
To close the gap, companies face the urgent need to complement their existing tactics by purchasing energy attribute certificates (EACs) in the spot market. Increased demand for these environmental commodities results in a constrained market with a subsequent price increase. The constrained timeline in the upcoming few months will likely escalate the pressure for companies to act.
What are the underlying macroeconomic trends that are driving these market developments?
In 2018, the United Nations’ released its updated IPCC Report, which reduced the threshold to avoid the worst impacts of global warming from 2°C to 1.5°C – a change that signals that the need to drastically reduce carbon emissions is critical for long-term business viability and resilience.
There is a growing consensus that climate change is impacting businesses now, and that the resulting extreme weather events, power outages and wildfires can cost companies millions of dollars. Investors are more active than ever on this topic and are now beginning to factor in climate risks and company commitments to renewable energy and sustainability as crucial elements when assessing their future profitability.
These trends are pushing the corporate sector to take voluntary action to address their environmental impact and driving regulatory change. U.S. states are revising their Renewable Portfolio Standards (RPS) to include higher percentage of renewable power in their grid mix, and in the European Union, the Renewable Energy Directive specifies that 32% of energy must come from renewable sources by 2030. As countries level up their renewable energy objectives, future regulation may very well require companies to adopt aggressive carbon reduction programs. Businesses taking a proactive role now will benefit moving forward by being ahead of the curve.
Why can’t most companies rely on renewable PPAs alone to reach their renewable energy goals?
PPAs are long-term, large-scale, complex contracts that aren’t right for every company. Even those companies using PPAs find that they often need multiple projects to reach their goals. Many are constrained by geography; PPAs are only currently viable (for most companies) in the U.S., Europe, Australia, India, and Mexico. Companies with load in other regions have to rely on either onsite generation, green utility or tariff programs or EACs to meet their goals.
Companies across all industries face the need to complement their initiatives with a portfolio approach to address emissions. They’ve got to focus on reducing load and developing a carbon-free procurement path. But regardless of how comprehensive an organization’s energy procurement strategy is, there are areas of operations where carbon emissions are simply unavoidable. That’s when EACs, and their Scope 1 counterpart, carbon offsets, become most valuable. While many companies are first focusing on energy efficiency and onsite reduction of energy usage, carbon offsets are a key addition to a strategic, sustained plan to reduce the environmental impact of business operations.
You mentioned carbon offsets. What should companies consider when addressing their broader carbon footprint?
The ‘ambition gap’ refers specifically to the shortfall in corporate procurement of renewable energy to meet publicly-announced goals—but it also has implications for companies working toward carbon neutrality and, more broadly, any carbon reduction goal.
Renewable energy goals tend to take priority for companies because purchased electricity resulting in Scope 2 emissions is a large contributor toward a company’s total carbon footprint. It is also relatively easy to address. But for many companies, renewable energy goals are part of a larger commitment to reduce carbon emissions from all three emissions scopes, not just electricity usage.
To learn more about the three emissions scopes, and how to address each, read our white paper: Clean Energy and Emission Reduction Claims
To make progress on Scopes 1 and 3, companies can purchase carbon offsets, AKA verified emission reductions (VERs). Carbon offsets counterbalance the greenhouse gases generated by processes like the onsite consumption of fuel, or those generated by a company’s supply chain and business travel. They can be a key component of a carbon reduction strategy. Companies buying VERs are also at risk of difficult supply and pricing as demand increases. Having a proactive plan in place to source VERs before the last minute will allow greater choice at the best price.
What are the implications for companies that are working toward goals beyond 2020?
Many companies have goals that reach beyond 2020 – however, this does not mean that they are insulated from the economic forces in the market for EACs and VERs. Companies with mature renewable energy strategies are initiating environmental commodity solicitations earlier, to start their procurement process before the market availability decreases and prices go up.
Organizations can face internal governance barriers when making the business case for renewable energy or carbon offset procurement. An early start also gives companies time to gain the buy in of crucial stakeholders.
How should companies navigate this market constriction?
Ultimately, the best way for a company to achieve its carbon reduction and renewable energy goals is to build a strategic, holistic roadmap. Organizations will face a growing need to decarbonize their energy use over time. Even if your company’s goals reach beyond 2020, it is important to prepare now to mobilize.