21 April , 2020

Ahead of GWEC’s inaugural London Energy Transition Dinner on 16 September 2020, we are tackling some of the big issues that must be addressed to accelerate the global energy transition and keep global warming under 1.5°C. Leaders across the energy, finance and corporate sectors will share their thoughts in the Energy Transition Talks blog series.

In this month’s edition, we speak with Aleksandra Klassen, RE100 Senior Impact Manager at The Climate Group, to learn more about the role the corporate sourcing of renewable energy in the global energy transition.

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Energy consumption is responsible for more than 70 per cent of global emissions, according to WRI’s ClimateWatch platform. Deploying clean energy, particularly to the power sector, is undoubtedly a key solution to mitigating climate change. What is RE100’s view of current global progress on renewable power?

The growth of renewables over the last decade has been truly extraordinary; you would be hard put to find someone who disagrees with that sentiment. But compared to where the science tells us we need to be to avert the most adverse impacts of climate change, we are falling far short. Renewables capacity must grow four times faster, with annual investments doubling to USD 750bn in order to achieve the UN-set climate goals by 2030, according to IRENA.

Despite solar and wind now being the cheapest power sources across most of the world, the share of renewables is still marginal in some countries and progress is further hampered by investments in new coal-fired generation, which if not already uneconomical, will be in several years.

The good news is that easy access to renewables is a competitive advantage in a globalised economy. As demonstrated by the RE100 initiative, which brings together 230 of the most influential companies committed to 100 per cent renewable power, the message is starting to resonate. Governments from mature and developing markets are reviewing their policies in order to attract an influx of clean capital that will in turn help them to decarbonise their economies.

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The Climate Group calls 2020 the start of the “Climate Decade”. What is the role of corporates – industrial and commercial consumers of energy – in supporting the energy transition? How does RE100’s network impact the demand of renewable energy around the world?

Corporate investment is critical to speeding up the clean energy transition at the scale required. Last year over 10 per cent of the renewable energy capacity added globally was done so via corporate power purchase agreements (PPAs), but that’s a drop in the ocean when compared to the commercial and industrial (C&I) sector’s overall power demand – two-thirds of the world’s end-use of electricity. Already today, collective RE100 commitments are larger than the electricity demand of South Africa, the 21st largest electricity consuming country.

RE100 members, including Global Fortune 500 companies, have a total revenue of over USD 5.4 trillion and operate in a diverse range of sectors – from information technology to automobile manufacturing. Together, they send a powerful signal to policymakers, investors, utilities and other energy stakeholders to accelerate the transition to a low-carbon economy. And with headquarters in 25 markets and operations in over 140, RE100 members carry enough weight to transform energy systems globally.

Without decisive action, countries risk losing out on billions in investment from RE100 companies. According to BloombergNEF’s analysis in 2019, the additional 210 TWh that RE100 companies need to convert to renewable electricity by 2030 to meet their targets will require up to USD 98 billion.

As the RE100 membership expands, companies help to transform the grid by directly sourcing renewable electricity and reaching into their supply chains. In places that are less mature for renewables, they can play a major role in growing the market and bringing down clean electricity prices – to the benefit of all consumers. Even more critically, we amplify those achievements to influence government policy and create broader systemic changes.

For example, just last week it was announced that Japan’s COVID-19 Economic Stimulus Package is allocating almost USD 1 billion to help facilitate the development of onsite renewables via corporate PPAs, to help meet the demand of a growing number of RE100 companies in Japan.

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Corporate sourcing of renewable electricity is enabled through various models and mechanisms, from the bilateral market in Brazil to the T-REC scheme in Taiwan. What are the fundamental ingredients for a successful corporate PPA market?

Most geographies that have an active corporate PPA market meet two key criteria: third-party sales are permitted directly between corporates and independent power producers, and grid-access rules are clear, with electricity transport arrangements allowed for both onsite and offsite PPAs.

Additionally, for a PPA to count as a credible renewable electricity claim, as required under RE100, the market must support an energy attribute certificates (EACs) system. Tracking and certification ensures corporates can retain attribute certificates associated with the electricity production, which prevents any other entities from claiming that power and over time, allows corporate demand to influence renewables electricity supply.

Corporate PPAs are still complex transactions (although contract standardisation is starting to help) so frameworks that provide more transparency, such as priority dispatch for renewables, and price benchmarking make deals easier to sign. This is most commonly the case in countries with well-established wholesale markets.

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Developing countries in Latin America, Africa and particularly South East Asia are experiencing rapid increases in power demand and industrialisation. What are the challenges and opportunities for corporate procurement of renewable energy that are distinct to developing markets?

Some of the challenges of developing markets are exactly where the opportunities lie for corporate sourcing. For example, a heavy reliance on imported fossil fuels often leads to higher and more volatile electricity prices, both considered strong drivers for corporates locking in longer-term rates with PPAs.

Blackouts significantly inhibit industrial competitiveness, making it more difficult for countries to attract and retain foreign investment. Here again though, allowing corporates to source their power through onsite renewables generation or bilateral agreements with renewables generators could be effective solutions.  

Both examples hinge on countries operating systems in which renewables can be price-competitive with other electricity sources, which is often not the case. Most energy investments are driven by government policies but over 40 countries provide little to no access to renewables.

Uncompetitive market structures, typically defined by the dominance of incumbent power utilities, are the bigger systemic challenge. This is especially true when coupled with that fact that many countries in South East Asia are dealing with electricity demand growing faster than the economy, requiring them to juggle short-term supply decisions with longer-term planning for power market reforms.

But corporate procurement of renewables could be used to drive simple policy adjustments (e.g. setting ambitious renewables targets, establishing EACs systems), which can trigger more sweeping changes in energy markets. This is why The Climate Group has been focusing on developing policy engagement strategies in collaboration with RE100 member companies and our partners in Japan, South Korea, Taiwan, Australia and India.

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What trend, innovation or solution has the potential to be a major game-changer in financing the energy transition, and why?

Energy storage is the biggest game-changer because it fundamentally alters electricity’s potential. Storage opens up loads of demand that is not flexible and helps bring the business case forward for demand-side management. In the medium to long-term horizon, that flexibility will be key for total decarbonisation.

Lithium-ion batteries, due in a large part to their colossal cost declines, have already spurred new business models and allowed companies to save costs by avoiding using power from the grid when it’s most expensive. They’ve also enabled energy to be traded locally and helped system operators manage the network more effectively.

It’s quite exciting that several solutions are within reach and not stuck in research facilities. By using existing infrastructure, in the form of mine shafts for example, or repurposing equipment from conventional energy infrastructure, some storage developers can access mature supply chains with bankable suppliers. Even households can benefit! UK domestic hot water tanks can in aggregate store more than three times the energy than the massive pumped hydro plant in Wales.

In order to see system-wide benefits at scale, like deferring billions of dollars of grid reinforcements and turning excess solar and wind power into green hydrogen (which can function as storage itself,) longer-duration storage solutions need to come onto the market quickly.

 


Aleksandra Klassen, RE100 Senior Impact Manager, The Climate Group
Aleksandra oversees the international operations of the global corporate renewable energy initiative RE100. She first got involved in the energy industry through publishing market intelligence reports in seven countries across South East Asia, Northern Europe and the Middle East. At the UK Solar Trade Association, she worked across policy, business development and strategy. Aleksandra holds an MSc in Energy, Trade and Finance from Cass Business School. 

About the London Energy Transition Dinner

A tremendous step-change in innovation and investment is required to address the urgent challenge of accelerating climate change. This invite-only event on 16 September 2020 will convene 400 key stakeholders across energy, finance and policy for an evening of networking and debate on the energy transition. The evening is supported by MHI Vestas and Vestas, and held in association with RE100, RenewableUK, SolarPower Europe, RES4Africa and the Renewable Energy and Energy Efficiency Partnership (REEEP).

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