U.S. Energy Transition at the Tipping Point

The United States energy sector is at the tipping point of a profound transformation.

Business and political leaders are—to varying degrees—recognizing that this is the decade that matters: time is running out to avoid the worst consequences of the climate crisis.

While we are making significant inroads on the energy transition to renewable energy, we’re not moving anywhere near fast enough. In a report on how the U.S. can keep global heating to the prescribed planet-saving 1.5ºC (2.7ºF) increase level, RMI recently noted:

“Limiting cumulative emissions requires that the United States prioritize immediately replacing existing fossil fuel infrastructure with efficient, zero-emissions alternatives, wherever possible.”

While such research may reinforce the already overwhelming data and evidence supporting the energy transition imperative, with each passing climate-fueled catastrophe, the urgency becomes more palpable. We are behind and playing catch-up. Our ambitions must be loftier and our actions more aggressive—and corporations can, and must, play a significant role.

The energy sector is central to the change that is needed, and renewables hold the key to decarbonizing our grid. Today, renewables provide a relatively small slice of the country’s electricity, but the key 1.5ºC threshold demands that changes quickly. BloombergNEF stated in its recent Energy Outlook Report that “more than three quarters of the effort to cut emissions in the next nine years falls to the power sector and to faster deployment of wind and solar PV.” The good news is that utility solar and wind are beating coal and natural gas on price in many markets and make up the majority of new generation assets being added to the grid in the United States. The financial investment community is increasingly embracing clean energy and turning away from fossil fuel holdings. And a growing number of corporations, including many Fortune 100 giants, are seriously pursuing net-zero carbon sustainability goals fueled by the procurement of cheap, clean energy to power their operations.

With new U.S.-based installed corporate renewable capacity exceeding 10 gigawatts, 2020 was a record year for corporate procurement, and that surge has carried into 2021, according to the Renewable Energy Buyers Association (REBA). Big tech companies like Amazon, Google, Facebook and Microsoft continue to make significant headway toward their 100% renewables goals. But much of the procurement is coming from new sources with onsite installations or via power purchase agreements (PPAs) with either independent power producers or directly with utilities as iconic American brands like General Motors, McDonalds, Pepsi and Hershey become active players. This corporate procurement momentum is gathering speed: S&P Global has identified 41 gigawatts of corporate PPAs for wind and solar projects contracted in 38 states.

However, those positive pledges should not lull anyone into a false sense of security. Although the progress in corporate procurement is laudable, we are not on track to limit warming to 1.5ºC. The business sector is in a unique position as commercial and industrial users account for almost two thirds of all electricity demand. But supply won’t change quickly without demand from end users of all sizes.

What is needed, in the words of the International Energy Agency (IEA), is “the immediate and massive deployment of all available clean and efficient energy technologies, combined with a major global push to accelerate innovation.” The organization’s “net zero pathway calls for annual additions of solar PV to reach 630 GW by 2030, and those of wind power to reach 390 GW. Together, this is four times the global record level set in 2020. For solar PV, it is equivalent to installing the world’s current largest solar park roughly every day. A major worldwide push to increase energy efficiency is also an essential part of these efforts, resulting in the global rate of energy efficiency improvements averaging 4% a year through 2030—about three times the average over the last two decades.”

This is all happening against a rapidly changing political backdrop.

The Biden Administration’s ambitious energy and climate policy agenda represents nothing less than a sea change from that of his predecessor.

The president didn’t waste any time in putting his climate-facing, clean energy-friendly agenda into action: after his first day in office, he announced plans for the U.S. to rejoin the Paris Climate Accords, the landmark 2015 international agreement to limit global warming.

Within weeks of his inauguration, President Biden signed several climate- and energy-related executive actions, quickly nominated highly qualified climate and clean energy proponents to fill key cabinet posts, appointed cabinet-level domestic and international climate advisers, and began proposing bold new legislation centered around clean infrastructure, including transmission grid improvements and electric transportation buildout, power sector decarbonization and job creation programs. The Biden team’s proposed multi-trillion-dollar programs promise to reinvigorate the U.S. economy through an aggressive infrastructure plan while also getting the country on track to seriously address the climate crisis. But President Biden needs to cement his plans through legislation in Congress, and that negotiation process has proved difficult as this report goes to press.

As the energy transition accelerates, we believe the time is ripe to find out how the decision-makers in corporate America are thinking about and acting on energy procurement and renewable energy procurement in particular. To meet the kind of renewables deployment necessary to buffer the impacts of global heating, the corporate sector is a key part of the solution.

Along with utilities, the business sector needs to take more of a leadership role and increase its procurement many-fold and do so quickly to avoid the crisis that would be triggered by “too little, too late.”

BayWa r.e. commissioned this study of U.S. corporate decision-makers to explore these topics and understand how best to support organizations as they work to make the transition to renewable energy and play their essential role in closing the gap between goals and reality. This is not BayWa r.e.’s first Energy Report, but it is the first survey in the series to focus on U.S. corporate energy buyers and decision-makers. Our previous Energy Report, issued in 2019, was based on a survey of corporations from six key energy markets in Europe. For the U.S. report, a series of questions were asked to provide critical insights into how leading corporations are approaching the renewable transition, the opportunities they see and the barriers preventing progress. And we asked about a range of subjects, such as their expectations on the role of government in combatting climate change; the drivers of energy decision-making in their companies, their energy goals, and their expectations for energy provider partners; the types of energy being procured and ownership models; the demographics of corporate energy buyers; and the role of consultants in corporate energy purchasing. Their answers reveal a guardedly optimistic view of the role that the current administration will play in the energy transition and climate policy; a rapidly growing interest in transitioning to renewable energy sources, to save money and to operate more sustainably; and a tension between decision-makers’ perceived high levels of knowledge in the energy options available to them and the barriers in actually implementing energy solutions in their organizations.