TODAY’S STUDY: CORPORATIONS TURN TO NEW ENERGY
Global Corporate Renewable Energy Index (CREX) 2012
September 2012 (Bloomberg New Energy Finance and Vestas)
Companies are increasingly becoming important drivers of demand for renewable energy worldwide. In addition to government-mandated renewable energy purchases, which are usually well-tracked for legal compliance reasons, the voluntary demand for renewable energy results in significant investments in green energy worldwide. Now in its third year, the Corporate Renewable Energy Index (CREX) brings transparency to these voluntary markets.
Global investment in new renewable capacity has continued to rise. In 2011 net investment in renewable power capacity outpaced that of fossil fuel generation ($237bn for renewables versus $223bn for additional fossil fuel generation)2.
For the CREX, Bloomberg New Energy Finance collects informa¬tion on the amount and type of renewable energy used by the world’s largest organisations for their own use, and also includes some innovative smaller companies. The CREX ranking is based on the amount of renewable energy procured by the respondents in 2011 (in MWh) as a percentage of their total electricity procure¬ment in the same period. The 2011 results contain over 300 companies from an initial contact list of nearly 1800. Whereas in previous years the CREX was heavily weighted towards developed countries and particularly the US, this year there was a more global distribution of participants. This global CREX report is being released at the same time as six regional focus papers on the US, Brazil, India, Australia, the UK and Germany.
The CREX companies tend to fall into two extremes, with most meeting only a small proportion of their power needs from re¬newable energy but some relying on renewable energy 100%.
As noted in previous CREX reports, the majority of companies use only a small amount of renewable energy (almost 30% of companies use less than 5% renewables). However the 2011 results show that at the other extreme, 35 companies source all their electricity from renewable sources and take equal first place in our rankings. These companies tend to be in consumer-facing sectors such as Financials, Consumer Services and Consumer Goods, purchasing Renewable Energy Certificates (RECs) to cover all their power usage, thereby providing a strong positive market¬ing message. The absolute MWh procurement level is generally a function of the size of the company. However there are other ‘non-discretionary’ factors which can prompt companies to use a greater amount of renewable energy such as the requirement of aluminium smelters to have a plentiful, reliable and cheap supply of electricity, which may favour siting near hydroelectric dams, and the ability of sugar and pulp and paper producers to generate energy by burning their biomass waste.
Companies obtain their renewable electricity a number of different ways, with direct investment being the most popular at 40% of renewable electricity purchases in 2011, closely followed by RECs at 38%.
However, companies often find the market confusing and lacking in transparency. The 2011 CREX includes more Brazilian and Indian companies than in previous years, so that, while in Europe and North America buying RECs or similar guarantees of origin continues to be the most popular way of procuring renewable energy, the global balance is tipped towards onsite investment and power purchase agreements.
European companies tend to favour renewable energy procure¬ment more than companies in the US.
The European CREX respondents purchased a large amount of their renewable energy via RECs or green pricing programmes, which are available throughout most of Europe, where consumers typically have high expectations of companies’ sustainability and renewable energy practices. In the US, however, the compli¬ance REC markets only operate in 32 states and the District of Columbia. RECs can be purchased voluntarily anywhere in the US, but the lack of policy targets in certain states indicates the patchiness of political support and consumer sentiment across the country.Many companies are making a significant commitment to renewable energy through direct investment in on-site genera¬tion (40% of renewable electricity purchases in 2011).
For companies with a large electricity demand, such as those in the Industrials, Consumer Goods and Basic Materials sectors, security of power supply is critical. Direct investments are particularly popular in countries where the grid supply is at times restricted (e.g. India) or where local renewable energy sources such as biomass and hydro power are readily available (e.g. Brazil). In addition, revenue can be generated by selling surplus power and the associated RECs if available.
Hydroelectric power is the most popular form of renewable energy (47% of the total share when the technology source is known), followed by wind (with 29%), and biomass and waste-to-energy (with a combined 23%).
These results are significantly influenced by the big electricity users in Brazil that use high levels of biomass and hydro power. Wind is favoured by companies looking for a cost-effective addition to a renewable energy portfolio where hydro power may not be available or where the company is concerned about additionality. In addition, wind turbines are a particularly visible sign to customers of a company’s commitment to renewable energy. Solar is a small proportion (<1%) of total renewable energy generation because costs have been relatively high until recently, power output is dependent on geography and weather, and the technology is less easily scaled up to large capacities than some other technologies. However, with the recent plummeting of Photovoltaics cells (PV) prices, we can expect solar energy’s share to grow in future.
The decision to procure renewable energy is generally taken at board-level, as part of the company’s corporate sustain¬ability efforts.
This was highlighted by the responses to the more qualitative questions that were added to this year’s CREX survey. Companies use renewable energy to enhance the “greenness” of their brand with customers, helping them to differentiate from their competi¬tors and drive sales. The survey responses also showed that a focus on renewable energy and sustainability is important in maintaining support from shareholders and improving employee retention and motivation.
The voluntary procurement of renewable energy has grown in recent years, and this is set to continue, but the pace of growth will depend on political and regulatory support. The three years of CREX data shows that global renewable energy as a percentage of the total electricity procurement increased from 14% in 2009 to 16% in 2011. In addition, over half of this year’s respondents state that they will procure more renewable energy in future. Companies are increasingly shifting the focus of their sustainability strategy from energy efficiency to renewable energy. However, there are CREX companies in all the key countries calling for an expansion in regulatory support for renewable energy, through mechanisms such as liberalising power markets, supporting incentive schemes or taxes on carbon dioxide emissions. Therefore governments and policy makers have an important role to play in the growth of this market…
Government programmes to mandate renewable energy use, such as the Renewable Portfolio Standards in use in many US states, require power companies to supply a certain percent of their electricity from renewable generators by a specified year. Similarly, special tariffs for renewable electricity have incentivised the development of new renewable capacity around the world.
However the voluntary use of renewable energy by companies is less well understood. In this case, companies choose to use renewable energy rather than conventional power, or purchase some sort of renewable energy credits. They may do this for branding and reputational benefits, to hedge against rising electricity prices or to ensure a reliable source of power supply. With governments in several major markets preparing to reduce subsidies for renewables, the voluntary procurement of renewable energy will become increasingly important.
The purpose of the global Corporate Renewable Energy Index (CREX) is to provide transparency on corporate energy consump¬tion, shedding light on the amount and type of renewable energy used by the world’s largest firms, plus some innovative smaller companies. We also look at companies’ reasons for purchasing renewable energy and drill into the popularity of the various procurement methods available. Consumer demand is a power¬ful transformational force, and the information contained in CREX allows consumers to make more informed decisions when purchasing products and services. This in turn may prompt more companies to switch to renewable sources of energy and be listed in CREX in the future.
This report includes results from all three years of the CREX Survey (2009, 2010 and 2011) during which time a total of 393 companies contributed data. The most recent responses were collected in July 2012 for the 2011 reporting period. The ranking of the respondents is based on the amount of renewable electricity procured for their own use in 2011 as a percentage of their total electricity consumption.
We are pleased to report that the total number of participants has increased significantly from 176 in 2010, to 306 in 2011. In addition, over half of this year’s respondents state that they will procure more renewable energy in future…
This year builds on two previous years of CREX studies. We al¬located more resources to collecting data from a wider range of locations, with a focus on six countries: Germany, the UK, Brazil, India, Australia and the US. Companies from these six countries accounted for approximately two thirds of CREX responses in 2011.
Note that company locations are based on the location of the headquarters rather than where their operations are sited. For example, Deutsche Bank is defined as a German company, al¬though it has operations and offices in over 70 countries…
Renewable energy is increasingly seen as a business opportunity for companies in a range of sectors
Companies do not just see renewable energy as a way of greening their operations. For many, across a range of sectors, renewable energy offers a growing business opportunity. For example, financial institutions such as the Royal Bank of Scotland (RBS) are increasingly lending money for renewable energy projects through dedicated departments. As a result, RBS has developed an industry-leading practice in providing finance to clean energy, in addition to purchasing renewable electricity for its own opera-tions (see box “Lending to renewable energy projects” p35).
Deutsche Bank, whose reporting systems are profiled in Section 3.5, is another financial institution that views the “greening” of its brand as an investment in relationships, expertise and systems that will give it a strong position in the growing clean energy market. Although it accounts for only a small amount of the bank’s revenue today, the renewable energy sector is a growth area and represents a major opportunity. Manufacturers are also moving into the renewable energy space, adjusting their products and services to meet the needs of the growing market.
The voluntary purchase of renewable energy will continue to grow
As mentioned in Section 2.1 voluntary renewable energy markets saw steady growth up to 2011. Figure 16 shows the respondents’ expectations of their future renewable energy procurement by sector and by country. Over half of the respondents said that they would procure more renewable energy in future. This reflects the ambition of the many companies such as Intel (see box “Topping the charts while continuously innovating” p33) that see an opportunity to build up the integrity of their brands by increasing their procurement of renewable energy.
Many companies begin their sustainability strategy with a focus on energy efficiency, which tends to be relatively easy to imple¬ment and can have clear cost benefits and shorter payback periods. The more ambitious companies, such as those taking part in the CREX survey, then shift the focus to renewable energy and tend to set steeper targets. For example, The Hartford, a US financial services company, initially focused on energy efficiency rather than renewable energy in order to reduce its carbon foot¬print. In 2011, it revised its greenhouse gas reduction targets and substantially increased its renewable energy credit purchases (see box “Rapid ramp-up of renewable energy procurement” p36).
Growth of the voluntary market depends heavily on political and regulatory support
Political and regulatory support is essential for the growth of renewable energy capacity, particularly where demand can be driven by marketing interests rather than energy security. How¬ever this support varies considerably between countries. For the six focus countries, Figure 17 shows the impact that companies believe regulatory support has on their decision to procure renew¬able energy. In all countries there are companies calling for an expansion in regulatory support for renewable energy. Clearly governments and policy makers play a significant role in enabling renewable energy to grow by setting up the conditions in the market, for example, liberalising power markets, supporting incentive schemes or taxes on carbon dioxide emissions.
Companies must become more innovative to differentiate their renewable energy strategies
It is clear that more and more companies are now exploiting the voluntary procurement of renewable energy as a means of branding. As consumers become more aware of sustainability issues and their nuances, companies wishing to be identified as sustainability leaders must do more and be more innovative in their approach, in order to differentiate from the competition.
For example, in the future, it may no longer be enough to take a low-effort approach to purchasing certificates. Some companies may choose to only purchase certificates that have been verified to exacting standards. Other companies, such as BSkyB, may choose to increase their level of commitment by investing in onsite generation (see box “Renewable energy with wood chips and wind turbines” p31). It will be interesting to see how the voluntary renewable energy market evolves, through future editions of the CREX report.