In energy markets across the country, from Texas to California to New Jersey and states like Iowa in between – electricity generated from renewables is rapidly becoming cheaper than fossil fuel generation. The increasing cost advantage of renewable energy has become a talking point for clean energy and climate change advocates. It’s also become a selling point for businesses looking to identify markets where its easiest and most beneficial to heavily invest in renewables.
The fact is that policy matters -- and states that enable distributed generation, through good policy, attract billions of dollars more in renewable energy investment than states without a robust energy framework. A report earlier this year on corporate procurement of renewable energy ranked each state according to ease of renewable energy procurement for corporations. The report highlighted the benefits of policies such as net metering with fair pricing structures for non-utility generators; a strong Renewable Portfolio Standard (RPS) to signal market certainty; and facilitation of smooth third-party Power Purchase Agreement (PPA) structures that make it easier for larger companies to purchase renewable energy directly from Independent Power Providers (IPPs).
These are all very important topics, and for all intents and purposes, any energy decision or conversation can’t be had without first taking these issues into consideration. But as more American companies with significant tax liabilities and capabilities to heavily invest in renewable energy generation - and even smaller companies without such tax liabilities - become interested in acquiring renewable assets, there’s an increasingly important part of the energy equation that many companies are now taking into consideration when analyzing energy.
- Resiliency and security (grid and cyber)
- Smarter, more nimble energy generation compatible with advanced data and analytics
- Volatility protection and price certainty
- Protection against future domestic and international CO2 emissions policies
- Corporate branding and consumer-driven sustainability
In an era where electricity generated from renewables is cheaper than coal in many markets, and where an aging power grid infrastructure is leading to increased occurrences of power outages from more frequent severe weather, the benefits of generating electricity onsite represents an opportunity to increase business performance and to protect assets from service interruption. For big technology companies like Microsoft, the threat of grid interruption was one issue among a handful that created internal urgency to address big liabilities in their energy supply. As Andrew Winston pointed out in his recent analysis, in 2011, Microsoft invested heavily in renewables and became one of the first companies to begin a major transition to renewables. This trend has made its way to a larger portfolio of customers and users who now see the value of renewable power and the risk of not switching to renewables. Even for our nation’s military, which is speedily purchasing renewables, issues like grid failure and resiliency make renewables much more valuable than conventional electricity generation.
It seems like every sector has benefited in some way from “big data” and analytics. Wind and solar are no exception. And this is not just from the mechanical engineering side; big data has been an integral part in increasing resource efficiency by siting equipment in the most optimal places to capture wind or solar resources. Whether we call this “producer-side” or “developer-side” data that optimizes generation, data is about to shift to the customer-side in a very real way, creating optimal energy usage for companies.
Today, energy software is allowing C&I customers to handle energy services and operations in house, or to partner with energy software companies that can tailor energy operations for each customer. The promise of energy data, coupled with developments in the energy storage industry, is making energy storage and advanced energy software economical and invaluable energy products for many companies even today. In addition, the cost of battery storage continues to fall, and more C&I battery options appear to be attractive purchasing options, especially when coupled with renewable power generation. This combination creates an energy triple-bonus: the ability for companies to protect, manage, and store energy in house. This is without even mentioning the ability for companies to sell power to the grid and create an extra revenue stream (revenue stacking) in doing so.
Protecting against price volatility and cost uncertainty is really the bread and butter of investing in renewable energy. As mentioned in the second line of this post, it’s no secret that renewable power cuts costs for many companies and locks in price stability against the inherent volatility of commodity pricing. But something else that companies need to be cognizant of in developing their energy strategies is what those should look like in a carbon-constrained world, which many analysts and advisers urge companies to do.
Today, it almost seems like a fairy-tale story that there were once Republican Party members leading the charge on levying a carbon tax. Former Congressman Bob Inglis (R-SC), who was among the most notable of these, suffered the electoral consequences of supporting a carbon tax during the rise of the Tea Party. But a national carbon tax is something that’s back on the table, even for Republican Party members, or at least Republican Party elders.
The bottom line for many companies is they need to be thinking about their energy portfolios and crafting them as if they were already functioning within a carbon-limited economy. Because whether its 2018 or 2020, a carbon tax continues to be a popular policy idea for how to tackle CO2 emissions while bringing in tax revenues, which - if recent tax reform proposals are any indication - will need to be addressed somehow given projected revenue shortfalls that would make any deficit hawk balk.
Even if a carbon tax isn’t the policy lever that expedites our entrance into an even lower-carbon economy in the next 5-10 years, companies cannot overlook consumer behavior, consumer-driven sustainability and B2B demand as forces that are already having an impact on energy decisions. In a recent event hosted by the Harvard Business Review, Cindy Ortega, Chief Sustainability Officer of MGM Resorts, highlighted the real business consequences of B2B demand for sustainability. IBM, before renting conference space from MGM, sent MGM a survey with questions about their energy usage, sustainability, and waste. Call it coercion, but companies are looking up and down their supply line to ensure their partners are sustainable. Companies unwilling to adapt will lose business – plain and simple. This is not to mention that consumers are more educated on company behavior and are making purchasing decisions based off perceived trust of brands. Companies that have sustainable missions or initiatives tend to attract loyal, repeat customers. And if the past four years is any indication, companies without sustainability in mind will lose customer loyalty. Renewable energy is a way to build trust and cut long-term costs.
These trends help explain why nearly half of Fortune 500 companies have renewable energy goals. New research by Ceres shows that about 200 of the Fortune 500 companies have collectively saved $3.7 billion through the completion of 80,000 sustainable energy projects. These are companies that see the value proposition of renewable energy and that don’t just see energy as a cost, but as an opportunity to strengthen their business postures by rethinking the way they generate or procure energy.