This article was originally published on February 4, 2019 on the ACORE blog
The sustainable energy sector is headed into the Roaring Twenties, based on milestones reached in 2019, from surpassing 2 million solar installations to the largest renewable energy announcement in the automotive industry. From the perspective of our advisory practice for organizations seeking to save energy and cut carbon, we’ll be watching these trends this year:
1) Corporate renewable buying pacing the sector’s growth
U.S. wind energy just surpassed 100 gigawatts of installed capacity, and the U.S. solar industry grew from a niche technology to a dominant source of new energy, driven by a 70% cost decline and $11.7 billion of venture capital, IPOs, and debt financing. There’s now enough solar capacity to power 13.5 million homes, up from 777,000 homes at the beginning of the decade.
This dramatic growth has been fueled by growing appetite from corporate buyers to procure renewable energy. This trend extends beyond early adopters like Amazon and Microsoft to the industrial sector and major institutions, including U.S. higher education.
Since the creation of the American College and University Presidents’ Climate Commitment in 2006, over 600 colleges and universities continue to lead as some of the biggest influences in sustainability. The sector alone collectively spends $6-7 billion annually on energy, and has operational budgets total $350 billion annually. So campuses can play a significant role in catalyzing renewable energy, while serving as thought leaders.
Renewable energy buying consortia have risen significantly as the higher education market aggregates its energy load and buying power. The New York Higher Education Large Scale Renewable Energy consortium is now one of the state’s largest aggregations of purchasers going to market for renewable energy.
2) More innovation in commercial deal structures
“Collars” are a recent innovation that Edison Energy has used to enable more corporate renewable energy purchasing, including companies using international accounting standards, by limiting the buyer’s downside risk in exchange for the seller receiving more of the potential upside. The buyer guarantees a revenue steam to build a new project, and the project owner has the ability to see more revenue if the wholesale energy market is favorable.
While virtual power purchase agreements (VPPAs) remain the most common structure employed in the U.S. for corporations, retail-delivered renewables are growing in popularity and the structures are evolving. In addition to options directly from retailers, corporations can source their own renewable projects and arrange a competitive process to select a retailer to sleeve the transaction. Combining wind and solar projects into a portfolio to align with the client’s load profile can reduce the firming premiums required for physical delivery. We anticipate more growth in these transactions, as industrial players move into the space with large, centralized loads in attractive deregulated markets.
We expect to see more such innovation in how commercial deals are structured, partly to satisfy international accounting standards as multinational corporations take steps to make good on their carbon reduction pledges.
3) As global interest in ESG grows, more standardization in carbon transparency
Impact investing, sustainable finance, climate risk, ESG metrics – so many buzzwords continue to surround the conversation around climate-related investments. Yet as ACORE pointed out in the report ESG 2.0: How to Improve ESG Scoring to Better Reflect Renewable Energy Use and Investment, the lack of standardization has made it easy to talk the talk without walking the walk. As the markets evolve, however, it’s increasingly important for any business interested in succeeding to take tangible, measurable actions to address their climate impact.
As carbon-related financial disclosure increases, there is a growing call for transparency from the investment community, representing capital the sector critically needs. ACORE’s ESG 2.0 report outlines four concrete recommendations the ESG community should take to more accurately measure the climate impact of investments, including enhancing renewable energy disclosures; providing credit for avoided emissions; implementing standardized, material and forward-looking data reporting; and adopting a universal climate benchmark. Additionally, groups like the Science Based Targets Initiative (SBTi) are also driving companies to set greenhouse gas emission reduction targets in line with climate science. To date, over 750 companies are taking science-based climate action, and 312 have approved science-based targets.
As this movement grows, there is going to be a steep learning curve as we begin to better understand carbon transparency. Expect to see the amount of carbon revealed in day-to-day business activities (from production to distribution) the same way we use nutritional labels to see how many calories and how much fat is in a glass of milk.
4) Energy storage dominating decision-making in the 2020s
According to the latest Wood Mackenzie global energy storage outlook, storage will climb to a 158 gigawatt-hour market in 2024. For comparison, that figure was just 12 gigawatt hours in 2018.
The appeal will be driven by declining costs and continued innovations for both short-term and long-term storage technologies. Competitors to lithium-ion batteries continue to emerge, with interesting developments in thermal storage at both high and ultralow temperatures.
In addition to providing grid services measured in seconds or minutes, we will increasingly be able to capture renewable energy that might otherwise be curtailed, a practice known as “peak shaving,” and timeshift its supply to hours when prices are higher.
Global investments of $374 billion a year will be needed to upgrade the grid with enough flexibility to account for the variable power generation of solar and wind. Storage solutions are a rapidly growing part of this energy transition, and will represent a $150 billion industry in the U.S. alone by 2023.
5) Getting ready to electrify everything (eventually)
Los Angeles recently set a goal that by the time of the 2028 Summer Olympics, 30% of the cars and 60% of the delivery trucks on its streets will be electric, with a corresponding massive increase in the number of charging stations.
Michael Barnard of TFIE Strategies (the name stands for “The Future Is Electric”) says our future will steadily become more automated, urban, clean, and low-carbon, thanks in large part to electrification.
The Electrification Coalition, an offshoot of Securing America’s Future Energy (SAFE), is hard at work on a policy roadmap to turn our vehicles electric; a scorecard of how each state is doing; and “accelerator communities” in Northern Colorado and Rochester, New York, in conjunction with over 400 “Climate Mayors.”
Barnard counsels that this will take decades, and that meanwhile there are many other ways to make today’s infrastructure cleaner and greener — which obviously includes cleaning up the sources of all that required electricity. We’re committed to helping companies participate in that, and we can’t wait to see what the Roaring Twenties will accomplish.