As part of the global initiative to move to a low — or zero — carbon economy, renewables have an important role to play. The transition has been led by energy developers and power-generating companies, which traditionally used government tariffs and subsidies to build renewable capacity with customers bearing the final cost.
But the dynamics governing this space are now changing.
Customers today are increasingly aware of the environmental implications of their energy consumption and are gravitating towards alternative technologies and solutions. Many, including millennials, embrace the use of clean energy and are driving the shift towards its adoption.
Naturally, a rising number of energy corporations are looking to play an instrumental role in this transition, including an increasing number of private sector players. In 2017, a total of 5.4GW of clean energy contracts were signed by 43 corporations in 10 different countries. More than 60 per cent of Fortune 100 companies have set clean energy targets as part of their corporate strategy.
These corporates are aware that the adoption of renewables may result in significant change in how they procure their energy and, at least in the short term, the size of their energy bill. Yet, they are powering through.
Major US corporations, such as Walmart Inc and General Motors, have become some of that country’s biggest buyers of renewable energy. Google, closely followed by Amazon, is now the world’s largest purchaser of renewable energy.
And a growing number of corporate consumers around the world have joined initiatives such as RE100 (a group of some of the world’s most influential companies which are committed to 100 per cent renewable power) to underscore their commitment to renewable power.
The UAE aims to cut carbon dioxide emissions by 70 per cent and increase the contribution of renewable energy to 44 per cent by 2050, and progress is evident. Recently, approval was given to the concentrated solar power (CSP) project that would provide clean energy to 270,000 homes.
The plant would be the last piece in building the largest single-site solar energy project in the world, with a planned total production capacity of 1,000MW by 2020 and 5,000MW by 2030.
So what has changed that has influenced corporations to adopt renewables?
Recent reports suggest that the costs associated with wind and solar power are declining; some renewable technologies may soon prove to be less costly than traditional fossil fuels as early as 2020. Some studies have shown that the cost of electricity generated by solar power reduced by 60 per cent between 2010-16.
For the Middle East, the adoption of solar would have far-reaching cost benefits, given that sunlight is available in abundance throughout the year.
The next factor driving this change is more psychological in nature. We live in a time when stakeholders value how sustainable companies are. More than ever, the government, investors, customers and employees are proud to be associated with sustainable entities and initiatives, regardless of the sectors in which they operate.
Increased awareness among stakeholders has further drawn focus on the accountability of organisations. Under “true value accounting” principles, corporations are being asked to identify and quantify the financial impact of climate-related risks in their business, and to outline the potential threats and opportunities to their own stakeholders through appropriate financial disclosure.
At present, this is a voluntary requirement, but in time these recommendations may become obligatory. It is perhaps best for companies to start the practice of risk assessment and disclosure from an environmental perspective at the earliest.
Meanwhile, energy providers are experimenting with a mix of models to respond to these changes. These can be either through synthetic power purchase agreements (PPAs), where prices are negotiated and power is delivered via an existing power grid; or via direct-wire solutions where a renewable solution is provided on-site, resulting in lower transmission costs.
At this stage, one of the most pressing issues is to determine a price that would work for both the generator and the corporate consumer.
It will be interesting to see how utilities respond to this transition. The best way forward seems to involve futuristic and complex energy platforms that would include multiple energy sources, producers, distributors and consumers.
In any case, the renewable energy revolution is well under way, and with the support of corporate consumers, there appears to be no going back.
Nizar Jichi is a Partner and Head of Energy & Natural Resources at KPMG Lower Gulf.
