Published by firstgreen on

Undeniably, financial volatility and climate change are considered to be the prime catalysts of alteration in the global ecology that could profoundly impact businesses and society. In the last decade, it is universally gathered that the corporate sourcing of renewables has the potential to churn substantial investments into renewable energy. With the right framework in place, it could enable not just the acceleration of the energy transitions but also shift the world closer to achieving the Paris Agreement’s objective. The year 2018 drew to a close with a hotly-contested ‘Katowice Climate Package’ finalized at COP24, establishing a set of guidelines to make the Paris Agreement operational by 2020. On the other hand, the findings of May 2018 report by International Renewable Energy Agency (IRENA) have startled most of us by indicating that the corporate sourcing occurs only in roughly a third of the world’s countries (i.e., about 75 countries), even though most governments are yet to adopt specific policies to nurture such trend. This hints towards tremendous potential still left untapped by rest of the world in tapping renewable energy, mainly corporations. To many of these corporations, transitioning their energy usage into renewable energy sources plays a vital part in their sustainability goals.

Corporate Social Responsibility (CSR) has been a hot topic from the previous few years, with several Fortune 500 companies proclaiming aggressive goals concerning their clean energy usage. Opportunely, as per Companies Act, 2013; even companies can aid equitable and sustainable energy access in communities that lack energy access or face intermittent access, via CSR as a catalyst (Article 135 and subsequently revised rules as per Companies Rules 2014). Offsetting energy costs through increased use of renewables is not only cost-effective, but such practices indeed pave a way for CSR success, which has an overpowering impact on consumers. To the benefit of all, USD 7 billion has been expended till March 2019 (in the last 4 years) under CSR programmes in India. On average, the clean energy budget accounts to almost 6% of the total CSR expenditure, which tends to be relatively low. Understanding of how the compulsory CSR ruling in Section 135 of the Act is still evolving as it can be hoped that this aids in the nation’s quest for clean energy, especially the off-grid distributed renewable energy.

Against this backdrop, it is worth mentioning that a coalition of companies committed to 100% internal energy sourcing from renewables has come into existence, most popularly known as RE100. RE100 was launched in New York City in the year 2014. The alliance works as an international NGO, having its presence globally in London, New Delhi, and New York. RE100 initiative is led by The Climate Group in association with the Carbon Disclosure Project (CDP). RE100 works to increase corporate demand for renewable energy by being a platform which brings together major companies championing climate change causes by sourcing 100% renewable electricity. This sets the standard for corporate leadership on renewable electricity, creating accountability as well as celebrating achievements. In the process, it communicates the compelling business case for renewables to many stakeholders, highlighting barriers and doing the necessary policy advocacy. Since then the initiative has its presence in Europe, North America, India, and China. It is seeing a lot of traction in Japan and Australia as of now.

Placing renewables at the core of corporate strategy, the existing 155 members (as of November 2018) are generating demand for 188 terawatt hours (TWh) of renewable power yearly which is comparable to approximately the power consumed by Thailand or Egypt. In such a small span of time, RE100 members’ commitments envelope more than 140 markets globally. Till now, big corporate houses like Sony, Facebook, H&M, Infosys, Tata Motors, and Mahindra Holidays, and so on, have pledged to rely 100% on renewable power in their overall set-ups by joining RE100. Some others like Google, Apple, Jupiter Asset Management, Wells Fargo, etc., have already met their 100% renewable electricity target. In India, Cochin International Airport and the Delhi Metro Rail Corporation have done commendable work in sourcing their power needs from RE sources. This hints towards tremendous potential still left untapped by the rest of the world in tapping renewable energy by corporates. Of course, India’s striving RE objectives offer enormous prospects for investors and the corporates to create a level playing field in the growth of India’s renewable zone. Let’s dig deeper to understand the complete rationale behind RE100 set-up.

Functioning of Corporates RE Installation and Financing

The RE installation sourcing could be pursued either through corporate Power Purchase Agreements (PPAs) or selfgeneration via direct investments. In the cases where the corporation sources electricity derived from renewable energy installations (outside of buying Renewable Energy Certificates), the RE units may not have been built or financed without corporate engagement. Corporations, therefore, act as an enabler of additional renewable energy generation by becoming the project sponsor as they drive implementation and financing. It is encouraging that in the year 2018, 52 companies in India responding to CDP have consumed a total of 86 TWh electricity in their operations, of which 6% (5.5 TWh) came from RE sources. The composition of renewable electricity consumption indicates that Renewable Electricity Certificates (RECs) are the most preferred procurement option among companies followed by PPAs. Renewable electricity is increasingly becoming cost competitive, especially when the industrial tariffs are growing considerably. The same is whetted by ever expanding vested interest in corporate PPAs as per the data reported by member companies to RE100 where PPAs represent 17% of all the renewable electricity purchased by RE100 members.

Going ahead, it is most likely that the growth will come from PPAs and captive production, as no fresh renewable energy capacity is coming under REC, because the industry has decisively moved towards tariffs determined competitively through bids, leaving no scope for RECs. Even in the current market, the enforcement of RECs is not strong and would need a lot of reforms before its true realization. Thus, it is envisaged that going ahead, there would be greater investment requirements and as RE prices go down; more and more companies may adopt RE financing.

Way Forward

While the financing of utility-scale RE projects by well-established RE developers has improved substantially over the years, the corporate sourcing of RE has nuances that need to be sorted out and subsequently made available widely to enhance the practice of corporates sourcing of RE. This, as and when it happens will create volumes that will result in financing that may tap the debt capital markets, in terms of both gathering required capital to put up the projects and refinancing of some assets with access to a larger pool of funds outside the banking system. There have been such issuances like Apple’s issuance green bond to finance its transition to 100% sourcing of RE for all its internal needs (it subsequently announced that it has reached its target of sourcing all its power from renewable sources). However, there is a need to spread awareness about how some of the corporates have financed some of their RE assets. Since the entire process of transformation involves multiple patrons, backward and forward linkages are to be strengthened in advance. Also, a step forward could be possible by ensuring an energy market structure that allows for direct contracting between companies and renewable energy developers. Certainly, the clean energy sector in India necessitates both sustainability and CSR initiatives. Last but not least, the process of environmental stewardship and benchmarking remains incomplete until these RE100 companies amalgamate disclosure, awareness, management, and leadership together.

Article by: Ms Megha Jain and Ms Aishwarya Nagpal, Asst. Professor, University of Delhi and Senior Research Scholars at FMS, Delhi University; and Mr Sandeep Bhattacharya, India Projects Manager, Climate Bonds Initiative, Mumbai.

Categories: Uncategorized