Sustainability Matters, but Economics is the Driver

CHAPTER 2


Economics, not environmentalism, drives demand

The most significant change in the renewable energy world over the past decade has not been regulation or technology, but economics. Massive cost declines—largely resulting from improved economies of scale of both component production and project construction and aided by easy access to low-cost capital—have fundamentally changed how corporations think about renewable energy. With the cost of renewable energy generation at or below parity with fossil-fuel-based energy generation, the decision to buy renewable energy is not primarily driven by a corporation’s stance on sustainability. Today, reducing energy costs is the most important goal of companies considering renewable energy—and is even more important than other economic drivers. Almost two-thirds of energy buyers (65 percent) stated that reducing energy costs was very important in their organizations’ consideration of implementing renewable energy, with almost every respondent (97 percent) saying it was important or very important. Other economic factors were still considerations: gaining greater predictability for energy costs was very important for 44 percent of respondents, and becoming independent from price changes was very important to 37 percent. Independence from energy prices was most valued by larger companies: it was seen as important or very important by almost all larger companies, 95 percent, compared to only 80 percent of the companies with 1,000–1,999 employees.

How important is cost?

When looking at what was rated as “very important” to energy decision makers, about two-thirds said cost was putting it substantially higher than other reasons to buy renewables.

1.7x

more important than contributing to sustainabilty

1.7x

more important than appealing to customers via sustainabilty

1.5x

more important than gaining an image of being sustainable

1.8x

more important than gaining independence from changing cost

What does this mean for renewables suppliers?

Now that the cost has declined, it is the leading driver of the decision to buy renewables, though the impact on sustainability is still valued.

Grid stability is an important consideration

After cost, reliability and resilience are critical considerations for corporations. The instability of the U.S. grid and an increase in extreme weather events that disrupt the grid, such as the Western wildfires, intense hurricanes, and the Texas deep-freeze of early 2021, have taken their toll. Being able to keep business operations going during an outage was seen as the second most significant driver of companies’ desire to access renewables: 95 percent said it’s important or very important.

Sustainability is not just window dressing

While respondents said that environmental responsibility is less important than both cost reduction and risk mitigation, it is still important. Interest in renewable energy is being driven as much by being green as by being perceived to be green: 93 percent say that contributing to the preservation of our environment and promoting sustainability in our society are important or very important, only slightly more important than giving a company a sustainable image (92 percent) and appealing to customers through environmental responsibility (91 percent).

Going for green

In addition to asking why companies were considering renewables, the survey looked at the energy goals companies were setting.

Increasing energy efficiency is a top goal

Organizations across the U.S. have aggressive energy-related goals, and we’ve seen that those are being driven primarily by economics. Four in five companies surveyed reported having a goal to increase their energy efficiency. The strategy gels with best practices in energy management: the cheapest electron is the one never used. Those seeking to increase energy efficiency aimed to boost it by a significant amount: 33 percent.

Three in five organizations aimed to increase the use of renewables, with an average goal of a 38 percent increase. Reducing greenhouse gases (GHGs) ranked third among energy-related goals at 38 percent, perhaps reflecting the focus of decision-makers on economic rather than environmental impact. Another factor may be that measuring GHG emissions is significantly more difficult than tracking energy usage and energy cost. The increasing attention to decarbonization shown by some corporations who are leading the renewables charge, may move the needle in this category.

Organizational Energy-Related Goals

Among total respondents

Reducing greenhouse gas emmission

0%

Increase the use of renewable energy

0%

Increase energy efficiency

0%

Average Goals

Among those with each goal

Industry Point of View

Sam Kimmins

Head of RE100

Sam is Head of RE100, which brings together the world’s most influential companies committed to 100% renewable power.

“Last year, 70% of our members cited cost savings as a primary factor when buying renewables.”
image

Key Takeaways


While reducing energy costs is the key driver in procurement decision-making, grid stability and sustainability are also important considerations. Most companies have plans to increase their energy efficiency to lower demand, and then use more renewables for what’s still needed. Being green is seen as a good thing, but being perceived as being green has almost equal value for many corporations.

The demand for resilience is likely to drive a shift in the amount of distributed energy resources (DERs) on the grid, which will need to be taken into account by grid operators and energy regulators as grid upgrades are planned. Add to that the growing demand for EV charging at the workplace, and any demand reduction from energy efficiency is likely offset by new uses.

It’s clear energy purchasing is a real business decision with bottom-line impact and deserves the resources to support it. Any marketing advantage is secondary. What this means for corporate energy buyers is that it’s critical to have both the numbers to prove the value of your decisions and the bandwidth to manage energy-efficiency programs as well as energy purchasing. Those concerned with driving operational costs and efficiency will likely be championing the decision to implement renewables, but those in marketing and customer relations won’t be far behind.

Chapter 3: Which Clean Energy Solutions to Choose?