Victoria Kenrick, Allen & York
November 09, 2011 | 6 Comments
LONDON -- Global investment in renewable energy increased by 30 percent between 2009 and 2010, reaching levels of $243 billion. At the same time "sustainability" is becoming a corporate watchword. What are companies doing to boost their green credentials?
Two strategies currently deployed by organisations are procurement and trading of energy from renewable sources, for example through Renewable Energy Certificates (RECs), and construction of renewable energy sites. Both concepts have advantages and disadvantages. New jobs are being created in the renewable energy sector, and many corporations are moving towards investing in producing their own renewable energy and, in particular, choosing to build their own wind and solar farms.
Driving change through a corporate sustainability strategy is a constant challenge. However, an impressive 81 percent of CEOs surveyed by U.K. newspaper The Guardian stated that sustainability issues are now "fully embedded" in their companies' strategies and operations, with many extending this focus to their subsidiaries and supply chains, specifically including procurement and investment in renewable energy sources.
Achieving reductions in energy usage is one of the many tasks that demonstrate a commitment to corporate sustainability. As competition intensifies to be the greenest brand in the marketplace, an overwhelming majority of FTSE 500 companies now voluntarily measure, manage and publicly disclose their carbon emissions; and a collection of high-tech solutions, clean technologies and market tools have evolved in recent years to meet these demands.
For example, in the U.K., the CRC Energy Efficiency scheme, which came into effect in 2010, is a mandatory carbon emissions reporting and pricing scheme, with the first report filed in July 2011 from organisations that use more than 6000 MWh per year of electricity. From 2012 participants will be required to buy allowances each year from the government in order to cover their emissions in the previous year.
This means that organisations that decrease their emissions can lower their costs under initiatives such as the CRC. Companies better positioned to improve their energy efficiency and save on costs will be those with a CSO or head of sustainability in place. Consequently, a skilled professional able to oversee energy management, sustainable procurement and corporate social responsibility, coupled with implementing accurate carbon reporting, is vital for every 21st century corporation.
Procuring Renewable Energy
Sustainable procurement within corporations includes a variety of "greener" purchasing options, one of which is buying into renewable energy, whether a company purchases power straight from the grid through specialised utilities, purchases RECs or produces energy directly.
RECs have enabled corporations to have access to renewable power through purchasing green certificates or credits through a utility company. Purchasing a number of RECs provides companies with a flexible tool that enables them to achieve green energy goals without having to change energy suppliers or construct their own wind farm. Often the procurement of RECs is useful for corporations based in regions where green pricing programmes are unavailable or there is a lack of policy support for the building of renewable energy projects. The huge benefit to corporations of purchasing RECs is that they do not need to move suppliers, and are not limited by their geographic location.
RECs are intended to give an additional source of funds to the renewable generator, and also to make it simpler for companies to meet Renewable Purchase Obligations (RPOs).
One REC represents 1 MWh of renewable energy generated; the actual power produced is sold to the grid and the REC is sold as a commodity (a certificate) in the marketplace. A common misconception is that organisations can purchase RECs as a method of carbon offsetting. This is not the case. RECs and carbon offsets are different mechanisms that accomplish different goals. Carbon offsets allow companies to reduce their greenhouse gas (GHG) emissions liability by purchasing the emission reductions made by another corporation, so that each carbon offset purchased represents the equivalent of one tonne of CO2 emissions. Whereas when a corporation buys an amount of RECs, often equal to their electricity consumption, they are perceived to be purchasing the power directly and can therefore claim to be powered by renewable energy.
Topping the number of RECs bought is Google, which has committed to buying RECs for the next 20 years. The search engine giant has a subsidiary, Google Energy, which has signed a 20-year power purchase agreement (PPA) with NextEra Energy for the entire output of a 114-MW capacity wind farm in the U.S. state of Iowa.
Google has committed to buying RECs for the next 20 years. Its subsidiary Google Energy has signed a 20-year power purchase agreement with NextEra Energy for the entire output of a 114 MW capacity wind farm (Source: CNBC)
Google cannot directly use all the clean energy generated by the wind farm, so it will sell the excess power on the regional spot market. This is an interesting model in which Google Energy provides the wind farm with the financial support necessary to build additional clean energy projects, and in return Google is able to claim that it is renewable energy powered. Often renewable energy developers find that funding is the main stumbling block to expanding and building new projects, so this financial commitment to purchase a large amount of energy over 20 years is an important enabler for future projects.
Renewable Jobs on the Rise
This rapid increase in renewable energy and low carbon trading opens up new job opportunities around the globe. Peter Hoskin, energy services consultant at Allen & York, comments that "There is a growing demand for low carbon and energy trading professionals who are able to manage corporations' portfolios and understand the legalities and logistics of the commodities markets."
Financial and executive professionals are increasingly required to work on new renewable energy projects, such as those funded by trading projects like Google Energy's. On a more technical level, the renewable energy job market is seeing an increased need for mechanical and design engineers to undertake feasibility studies and project management for the increasing number of renewable energy facilities worldwide.
There is also an increased demand for environmental planners and project developers to find suitable sites, undertake audits, carry out environmental impact assessments and perform other pre-project tasks. And there is a significant rise in the number of grid connection vacancies for skilled technicians when facilities are complete. Tom Wolsey, grid connection recruitment consultant at Allen & York, comments: "Our clients require specialist electrical engineers to manage the often complex and challenging task of ensuring that the connection of renewable energy is both technically and economically robust. Candidates for these roles are highly sought after due to a shortage of these skills within the current marketplace. This would be a fruitful area of specialisation for professionals within the electrical industry."
For the increasing number of businesses that are choosing to generate their own renewable energy, each could benefit from average returns of 11–12 percent, with the potential for returns in excess of 20 percent, according to a new Carbon Trust Advisory analysis. Factors such as new financial incentives, energy market trends and building regulations contribute to a compelling case for companies to develop their own renewable energy production.
As energy prices are estimated to grow by 37 percent by 2020, the opportunity to reduce huge energy bills is a fundamental incentive. Moreover, government incentives such as feed-in tariffs (FiTs) mean that companies can not only save on utility bills, but can also benefit from the capped level of funding available.
What Companies Are Doing
Retailers and consumer goods brands are leading the way in the production and use of renewable energy. One global organisation which has made strong progress in this area is IKEA, which now obtains 80% of its total energy from renewable sources and has invested in a mix of ground source heat pumps, biomass, solar panels and wind power. Charlie Browne, IKEA U.K. and Ireland sustainability manager, explains: "As part of our global IKEA Goes Renewable program, we are committed to heavily investing in making IKEA buildings more energy efficient and using more renewable energy. Our recent investment into a 12.3-MW wind farm in Aberdeenshire and a £4 million (US$6.3 million) investment to fit over 39,000 photovoltaic (PV) panels to the rooftops of 10 IKEA stores show our clear actions to reach our goal of 100 percent renewable energy supply."
81 percent of CEOs surveyed stated that sustainability issues are now "fully embedded" in their companies' strategies and operations (Source: Wikidot)
IKEA Canada is financing the installation of 3790 solar panels totaling $4.6 million. This will be the largest rooftop solar installation affiliated with Ontario's FiT programme. IKEA Canada expects that its solar panels will generate about 690 MWh of clean energy per year. IKEA will receive 71.3 cents per kWh for the energy that these panels feed back into Ontario's utility grid, which means that the company could earn as much as $684,000 a year in extra revenue.
The Global Community
In September 2011 the UN launched an initiative to promote sustainable energy. The core of the initiative is a vision of achieving universal access to modern energy services, doubling the rate of improvement in energy efficiency and doubling the share of renewable energy in the global energy mix, all by 2030. As countries are asked to provide significant new commitments, the establishment of public-private partnerships to spur private investment towards the main targets will be key — hence the growing relationship between renewable energy development and the sustainability actions of global corporations.
UN Secretary General Ban Ki-moon announced that a Framework for Business Action was being developed in conjunction with leading businesses in the UN Global Compact, an initiative that seeks to foster socially responsible corporate practices and outlines three ways of engaging with the UN: through a company's core business and internal operations; social investments; and advocacy and government engagement.
Another example of corporate investment is Samsung, which aims to provide renewable energy to the grid through the FiT initiative. This autumn Samsung acquired a 180-MW wind project in Ontario, another in the company's growing portfolio of renewable energy projects; earlier this year it purchased land development rights to expand the previously planned South Kent Wind Farm in the U.K. to 270 MW, and in 2009 the company signed a Green Energy Investment Agreement to establish four manufacturing plants in Ontario and develop up to 2500 MW of renewable energy projects.
It is clear that renewable energy is increasingly becoming an integral part of corporate sustainability. Procuring renewable energy through purchasing RECs has quickly become a popular way for corporations to not only support the future of alternative power, but to benefit from the renewable attributes attached to each REC, as they are traded by and between corporations. By supporting green energy, corporations demonstrate that there is a need for it. With companies directly investing in renewable energy and building their own facilities, they can secure the future development of projects around the globe, as well as making a significant financial investment for the future of their business.
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