Clean Energy Makes More Business Sense Than Ever Before

We are in the midst of a clean energy revolution. Renewables have never been more efficient or cheaper, and while some roadblocks remain (notably the scaling of energy storage), it’s clear that society is at a tipping point. In the coming years and decades, solar panels on rooftops will likely become more common than gas stations along highways.

Many companies and consumers have jumped onto the clean energy train, though some lingering resistance remains. For one, not all companies have committed to harnessing cleaner sources of power. A report from Ceres, WWF, Calvert Research and Management, and CDP shows that about 63 percent of Fortune 100 companies have set one or more clean energy targets.

Certain industries are also more welcoming to clean energy than others: 72 percent of consumer packaged goods (CPG) companies have made some form of sustainable energy pledge, whereas only 11 percent of energy companies have done the same. This isn’t so surprising, given that energy companies primarily specialize in fossil fuels, but it is a decrease from three years before. At that time, 25 percent of energy companies had committed to clean energy investments or climate change mitigation plans.

Renewables offer important advantages for a business’ bottom line, including ever-decreasing costs and even a boost for brand reputation and customer relations. But the business case is now even more compelling, which has nudged global energy heavyweights such as Shell and BP to get back into the solar and wider renewable markets here in the U.S. and abroad.

Cleaner is now cheaper

In most markets, renewable sources of power, including solar and wind, were not as cost effective as fossil fuels until the past few years, making it unattractive to businesses solely concerned about their bottom lines. As late as 2011, costs for solar energy, for instance, were as high as $100 per megawatt-hour (MWh). Solar is now, on average, $50 per MWh, and costs are continuing to decline. In comparison, coal costs approximately $100 per MWh to produce on average, while gas and nuclear cost $40 to $50 per MWh and $90 per MWh, respectively, based on the historically conservative U.S. Energy Information Administration estimates.

Worldwide, the story is much the same. In 2016, 167 gigawatts (GW) of renewables were installed. The costs were also far lower than previous investments, pointing to increased efficiency and improved technical know-how.

One way to take advantage of this rapid decrease in costs is for businesses to negotiate a power purchase agreement (PPA). Today, renewable energy providers have made it incredibly easy to negotiate PPAs, allowing client businesses to make commitments for power outputs as low as 2 to 10 MW, rather than forcing them to purchase high-capacity plans suited only for big businesses. As a result, smaller organizations can more easily meet their power needs with renewable energy.

PPAs have plenty of ancillary benefits as well. By contracting with a renewable energy provider, businesses do their part to curb pollution and even spur growth in related sectors. Over the next decade, solar panel and wind turbine technician jobs are projected to grow twice as quickly as any other occupation, by 105 percent and 96 percent, respectively. Increased demand from businesses, encouraged by a clear-eyed evaluation of the financial benefits of clean energy, plays a large part in this rapid expansion.

More and more, though, PPAs are unnecessary. Power markets are developing to the extent that a solar project can be built as a “merchant” or “hedged” project using similar structures to what would traditionally be done for a gas- or coal-fired plant. This opens up a much larger opportunity set for clean energy developers and financial markets and is an important trend to watch.

Consumer consciousness and good business

Over the past few decades, awareness of (and concern about) climate change has increased amongst the general population. A 2016 Gallup survey found that, in the United States, concern about global warming was at an eight-year high; 64 percent of the population worried a great deal or a fair amount about global warming. Furthermore, only about 10 percent of Americans believe that the effects of global warming will never occur; by far, the majority (59 percent) believe that such changes have already begun.

This is to say that increased awareness about the costs of life on a warming planet translates to business opportunities. A Deloitte survey found that 68 percent of electric power buyers are very concerned about climate change and their carbon footprints—the highest percentage recorded thus far. Additionally, some 70 percent of businesses reported that customers demanded that they drew at least some of their power from renewable resources.

This mindset extends beyond utility services. A 2017 report by Cone Communications found that 87 percent of consumers would purchase a product because a company advocated for an issue they cared about. This is particularly true for younger generations; a Nielsen study found that nearly 75 percent of millennials and 72 percent of Generation Z prioritized sustainability while shopping, compared to only 51 percent of Baby Boomers. Elsewhere in the world, that number rises: 88 percent of Indians and 85 percent of Brazilians feel that way about buying sustainably-produced goods.

Even in the face of recent U.S. actions including withdrawing from the Paris Climate Accord and slapping tariffs on incoming solar panels, many large companies are staying the course on clean energy. Large corporations like Nike and Amazon don’t simply sign onto pledges; they also walk the walk, signing long-term, large-scale PPAs with clean energy producers. Worldwide, it is estimated that some 20 gigawatts (GW) of wind and solar farms have been spurred on by big business—nearly 4 GW more than Britain’s total wind capacity.

In 2018, that number continued to increase. As of spring 2018, 36 agencies, universities and businesses have already signed deals for 3.3 GW, on track to shatter last year’s high. This includes big corporations like AT&T and Walmart, but also smaller companies, which benefit from ever-increasing supply (and as a result, falling prices).

Another major trend is the increasing use of solar and wind to power data centers for behemoths such as Google, Apple and Microsoft. These tech giants generally locate their data centers in remote locations close to the cheapest power sources—which are now solar and wind. Google and Apple claim to be 100 percent renewable users—good branding, good business.

The data make it clear that society and business are in the middle of a renewable energy revolution. As with other massive developments, participants who move fast are reaping larger advantages than latecomers. Thankfully, as energy technologies continue to improve into the future, there will also be plenty of space for businesses to join the new normal of an increasingly cleaner electricity market.

Image credit: Jem Sanchez/Pexels