Feature: Business Demand for Renewables

Business has a significant role to play in renewable energy deployment. Companies worldwide are contributing in various ways, including through manufacturing and production, research and development, installation, project financing and energy infrastructure, as well as by procuring their energy from renewable sources. Despite the impacts of the COVID-19 pandemic and related recession, corporate sourcing of renewable electricity through power purchase agreements (PPAs) rose 18% in 2020.1 Businesses also increased their use of renewables for heat and transport, although to a far lesser extent.2

Firms and industries have different energy needs, and uneven patterns of business demand for renewables exist depending on the sector, technology and geography. Whereas corporate sourcing of renewable electricity is advancing quickly, the use of renewable energy in industrial heat and transport is not.3 However, innovations in markets, financing mechanisms, policies and technologies (such as renewable hydrogen) are helping to close gaps and facilitate greater demand.

DRIVERS OF BUSINESS DEMAND FOR RENEWABLE ENERGY

A combination of factors is contributing to growing business demand for renewables across all sectors. These include environmental and ethical considerations, cost savings, competitiveness, risk mitigation, and business coalitions and collaboration. Government policy also continues to play a key role in incentivising business demand for renewable energy on various fronts. (→ See Policy Landscape chapter.)

Renewables are central to companies’ efforts to achieve their zero-emission or other ambitious emission reduction goals. For some companies, the drive to increase the use of renewable energy is part of larger environmental goals and, often, a fundamental element of a broader sustainability strategy.4 Stakeholders such as customers, workers, local communities, suppliers and shareholders increasingly expect companies to play their part in climate action and to become more accountable as well as more publicly transparent about their sustainability practices.5

Renewable energy is a core area of business sustainability reporting (for example, providing updates on current use of renewables and on targets set for future use); this has become more standardised worldwide through the efforts of the Global Reporting Initiative, the Carbon Disclosure Project (CDP) and similar entities.6 Investor and shareholder interest in renewable energy companies also is burgeoning. Investment in sustainability-related funds surged around 300% in 2020, and share prices in renewables and other clean energy firmsi rose 142%; meanwhile, share prices for oil and gas companies fell 38%.7

Cost savings and competitiveness are another key driver of business demand for renewables. Renewable electricity in particular has become increasingly attractive commercially compared to new and existing fossil fuels, and has been cost competitive compared to nuclear power for some time.8 In some cases, it can be less expensive for companies to source their own renewable electricity directly from suppliers or to produce it themselves than to buy it from the grid.9 In electricity generation, renewables now offer more attractive cost options for at least two-thirds of the global population.10 (→See Sidebar 6 in Market and Industry chapter.)

Risk mitigation objectives also drive companies to adopt renewables, as these energy sources can help reduce energy supply risks, price risks and reputational risks as environmental values take deeper root in global society.11 In addition, renewables can reduce policy and regulatory risks arising from potential future changes, such as carbon taxes and the market transition towards a low-carbon economy. Firms have come under growing pressure to disclose and address climate-related financial risk, particularly for credit rating agency assessments.12

Business coalitions promoting greater demand for renewables have grown quickly. The RE100 group of companies, committed to achieving 100% renewable electricity, nearly doubled its membership in just over two years, from 155 members in January 2019 to 309 members by May 2021.13 Membership in EV100 – a group of companies committed to transitioning their vehicle fleets to electric vehicles (although without a direct link to renewables) – grew similarly.14 Other organisations are providing leadership and support frameworks to help leverage business demand for renewables.15 (→ See Box 9.)