Contributed by Charles Benisch, senior director of renewable advisory at ENGIE Impact
Renewable energy assets are coming online at record rates; the International Energy Agency (IEA) reported the world added 50% more renewable capacity in 2023 compared to 2022.
The emissions reduction benefits of solar, wind, and other renewable technologies are well-documented. For many organizations, making good on climate commitments will require adopting renewables in some capacity. Yet many of the same organizations are experiencing a disconnect between environmental and financial goals.
To bridge this gap, sustainability officers and their advisors must reframe renewable energy strategies with financial decision-makers in mind — prioritizing strategies that deliver as much financial and risk-management benefits as environmental ones.
Making renewable energy a business priority: Three key approaches
No two companies or strategies are the same, but there are a few big-picture approaches that can better align renewable energy plans with a corporation’s bottom line.
Reducing costs and driving earnings
Voluntary renewable energy purchases are, by and large, considered a discretionary expense that increases costs and lowers profits. Voluntarily increasing costs — even to satisfy environmental, social, and governance (ESG) goals — may not be favorably viewed by financial teams, investors, or C-suite executives.
When financial priorities and climate priorities seem to be at odds, successful sustainability leaders will recognize business-friendly renewable energy approaches. For example, community solar subscriptions can help reduce greenhouse gas emissions while delivering guaranteed energy cost reductions. On the earnings side, renewable energy tax credits can significantly lower a company’s effective tax rate and improve its earnings per share (EPS).
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Managing risk
Addressing climate pressures should be the main reason a company adopts a renewable energy strategy. However, managing exposure to long-term energy costs and short-term legal risks are both benefits that better align with corporate decision-making.
As a recent Forbes article suggests, “Greenwashing is the new goldmine for litigators.” For instance, the New York Attorney General filed action against beef provider JBS USA for “misrepresenting [the] environmental impact of their products.” Sustainability leaders should closely follow investigations, lawsuits, and regulatory action brought against peer companies, as renewable energy purchases are often seen as less costly and less risky than potential litigation for misstatements or missteps in a company’s climate commitments.
Similarly, growing electricity demand exposes corporates to more energy cost risk than ever before. The Electric Reliability Council of Texas (ERCOT), the state’s main electric grid operator, reported a record-high 85 gigawatts of demand last year. ERCOT experts now forecast demand to reach 150 GW by 2030, a 175% increase in demand ushered in by growing data center load, hydrogen production, manufacturing, and the electrification of both transportation and oil and gas operations that represents a material risk to operating profits for any company with considerable energy costs. Renewable energy contracts that limit exposure to those price risks can be a valuable risk management instrument.
Balancing business priorities with climate priorities
The importance of matching the benefits and potential risks of a renewable energy solution with an organization’s financial goals cannot be understated. An initiative that focuses too heavily on ESG issues over cost and risk benefits will be less likely to secure management approval.
For example, the business case for pursuing a power purchase agreement (PPA) considers a 12 to 20-year planning horizon. Executives may be prone to focus on PPA risks without considering the alternative risk of energy costs under business-as-usual conditions. If a renewable solution can be shown to preserve operational margins, it is much more likely to gain approval than one that focuses too heavily on voluntary environmental benefits.
Every renewable energy solution (e.g. PPAs, tax equity, community solar, on-site solar) comes with pros and cons. Successful teams will layer or stack solutions to limit tradeoffs and take advantage of complementary benefits. For instance, on-site solar can deliver energy cost reductions in many markets, but isn’t likely to deliver swift, scalable GHG emission reductions. Conversely, purchasing renewable energy certificates (RECs) can deliver portfolio-wide emission reductions, but will increase costs (unless a favorable PPA or vPPA can be structured.)
Moreover, cross-department partnerships for sustainability initiatives are tantamount to reducing opportunity costs. In one recent project, ENGIE Impact helped the VP of Sustainability at a Fortune 500 company learn that the organization’s tax team was pursuing renewable energy tax benefits independently. Bringing the sustainability team to the decision-making table, we helped ensure the company did not exhaust its tax appetite and thereby miss the opportunity to include renewable energy certificates (RECs) in a tax deal.
Ultimately, in our role as renewable energy advisors, we must help sustainability teams become more fluent in corporate finance, and help finance teams become more fluent in sustainability. When knowledge and resource gaps are bridged, it’s easier to pursue renewable energy strategies that align with everyone’s goals.
Case study: Putting a strategy to work
A national Fortune 500 retailer was committed to science-based emissions reduction targets. Achieving these commitments meant purchasing hundreds of thousands of RECs each year, exposing the retailer to millions of dollars of additional operating expenses at a time when it was focused on cost reductions.
Renewable energy solutions that would erode profits or bring budgetary risks would not be approved by the finance department. The retailer was rightfully concerned over the financial risks and reputational risks that could come from not complying with climate statements and disclosures — and inaction was not an option. It engaged ENGIE Impact to establish a renewable energy strategy catered to its climate and financial goals.
ENGIE Impact helped the retailer secure community solar subscriptions that save hundreds of thousands of dollars annually. These savings offset the cost of REC purchases — significantly reducing GHG emissions without impacting the retailer’s sustainability budget, energy costs, or net profits.
Next, ENGIE Impact worked to align the company’s tax, accounting, and finance teams with their own ESG objectives. This included evaluating tax equity investment opportunities that leverage a federal income tax liability into a sustainability tool. When complete, the retailer will earn a +10% yield on its investment — using cash that could not otherwise be used for dividends or invested back into the business. The yield from this investment remains flexible. Depending on business needs, the yield can either be used to source cost-free RECs, finance energy efficiency projects, or be retained as net profit.
Renewable energy strategies vary based on industry, company size, location, and so many more factors, but committing to and executing a strategy catered to a company’s financial priorities is possible. Sustainability and finance teams must bridge organizational and educational gaps to understand how renewable energy tactics and technologies can fulfill business and sustainability goals.
About the author
Charles is the senior director of renewable advisory at ENGIE Impact, a leader in the development and execution of corporate decarbonization programs with 6 GW of renewable PPAs contracted across North America. Charles leads a team of renewable market experts, analysts, and advisors purpose-built to help companies and large institutions navigate a complex renewable energy landscape, align sustainability and traditional corporate profit/risk strategies, and accelerate emission reduction efforts.
