The energy revolution looks much more attainable, undeterred and above all promising than it has ever seemed so. But challenges need to be addressed, say Megha Jain and Aishwarya Nagpal
Undeniably, financial volatility and climate change are considered to be the twin prime catalysts for alteration in the global ecology that can profoundly impact businesses and society alike. It has been universally acknowledged that in the last one decade, corporate sourcing of renewables holds the potential to churn substantial surplus investments in the renewable energy sector. With the right framework in place, it can enable not just the acceleration of energy transition but shift the world closer to achieving the ambitious Paris Agreement goal.
While on the one hand, 2018 drew to a close with a hotly-contested ‘Katowice Climate Package’ finalised at COP24, which established a set of guidelines to make the Paris Agreement operational by 2020, on the other, the findings of a May 2018 report by the International Renewable Energy Agency (IRENA) has startled most of us as it indicated that corporate sourcing occurs only in roughly one-third of the countries across the world (ie about 75 countries), even as most Governments are yet to adopt specific policies to nurture such demand. The said report also hinted towards tremendous potential that still remains to be tapped by the rest of the world.
Against this backdrop, it will be worth mentioning that a coalition of companies, committed to 100 per cent internal energy sourcing from renewables by 2050, has come into existence and is popularly known as RE100. The alliance works as an international NGO and has global presence with offices located in London, New Delhi and New York. RE100 initiative is led by the Climate Group in association with the Carbon Disclosure Project (CDP). Placing renewables at the core of corporate strategy, the existing 155 members (as of November 2018) are generating demand for 188 terawatt hours (TWh) of renewable power yearly, which is comparable to the 23rd biggest economy power consumption all over the world.
In such a small span of time, RE100 members’ commitments envelop more than 140 markets globally. Till now, big corporate houses like Sony, Facebook, H&M, Infosys, Tata Motors and Mahindra Holidays among others, have pledged to rely 100 per cent on renewable power in their overall setup by joining RE100. Some other groups like Google, Apple, Jupiter Asset Management and Wells Fargo among others have already met their 100 per cent renewable electricity target. Of course, India is striving to attain the RE objective, which offers enormous prospect for investors and corporates to create a level-playing field for the growth of India’s renewable sector. Let’s dig deeper to understand the complete rationale behind the RE100 setup.
The RE installation sourcing can be pursued either through corporate Power Purchase Agreements (PPAs) or self-generation via direct investments. Going ahead, it is most likely that growth will come through PPAs and captive production as no fresh renewable energy capacity is coming under REC because the industry has decisively moved towards tariffs and determined competitively through bids, thus leaving no scope for RECs. Even in the current market scenario, the enforcement of RECs is not so strong and needs a lot of reforms before its true realisation. Thus, it is envisaged that to fulfill the dream, the need is for greater investment and as RE prices go down, more and more companies may adopt RE financing.
Way forward: While financing of utility-scale RE projects by well-established RE developers has improved substantially over the years, corporate sourcing of RE has nuances that need to be sorted out to ensure a better spread. This, as and when it happens, will create volumes that will result in financing that may tap help debt capital markets, both in terms of gathering required capital to put up the projects and refinancing of some assets with access to a larger pool of funds outside the banking system. Issues have been many. Take, for example, Apple’s publication of green bonds, dedicated to financing clean energy projects across its global business operations. Clearly, the need is also to spread awareness regarding the number of corporates, who have financed some of their RE assets.
Since the entire process of transformation involves multiple patrons, backward and forward linkages need to be strengthened in advance. Also, a step forward could be to ensure an energy market structure that allows for direct contracting between companies and renewable energy developers. Last but not the least, the process of environmental stewardship and benchmarking remains incomplete until these RE100 companies amalgamate disclosure, awareness, management and leadership together.
(The writers are Senior Research Fellows, Faculty of Management Studies, University of Delhi)