Companies are continuing to buy clean energy at record pace, making corporate buyers a major player in the renewable power sector.
Figures from BloombergNEF reveal that businesses have signed up to buy 8.6GW of clean energy up to the end of July, up from 7.2GW over the same period last year, suggesting that the market is set to comfortably exceed the 2018 total of 13.6GW, which was itself a record.
Once again, the market is dominated by the US, which accounted for 69% of capacity, or 5.95GW, close to the figure for the whole of 2018. Texas dominated the market, with 40% of the activity so far in 2019, in part because companies can take advantage of peak pricing in the ERCOT (Electricity Reliability Council of Texas) system, during the hot summer months, which greatly improves the economics of such deals.
However, there has been a drop-off in deals signed through green tariffs from regulated utilities in the US, with just 1GW of deals signed. BNEF says it is unlikely that the 2018 figure of 2.6GW will be equalled. “This may be a result of buyer apprehension, as several companies have been involved in highly publicized legal battles with regulated utilities over clean energy buying,” the research group says. “Companies are instead favoring the virtual PPA model, which has made up 82% of all US deals in 2019.”
Less than 1GW of deals were signed Power Purchase Agreements (PPAs) for clean energy in Europe, the Middle East and Africa during the period, with the Nordics, which were the driving force in the region last year, recording just 300MW of deals.
The market is even less dynamic in Asia, where key markets Japan and China do not currently allow companies to procure their own renewable power. However, BNEF says that “ China is on the verge of rolling out game-changing policies for corporate procurement” with policymakers set to implement two key policies that should see the market in the country surge over the next few years.
“The first is a renewable portfolio standard, mandating that corporations meet a percentage of their power load with renewables,” BNEF says. “The second is a prosumer model, allowing companies to sell excess generation from their own clean energy projects to neighboring sources of demand. Both mechanisms will create more corporate demand and give companies flexibility in how they procure renewables in China.”
Despite the strong growth in corporate PPAs in recent years, analysts say that the market remains in its infancy, with massive potential to grow – and to drive the deployment of more clean energy projects.
Much of this demand is already pencilled in through initiatives such as RE100, under which signatories commit to source all of their electricity from renewable sources. With 191 signatories at the time of writing – 33 of which joined the scheme in July – RE100 companies face a capacity shortfall of 189TWh in 2030, which will give project developers confidence to commit to new projects. “Should these companies meet their 189TWh shortfall through solar and wind PPAs, we estimate it would catalyze an additional 94GW of renewables build, leading to $97bn of new investment,” BNEF says.
In addition, the reforms set to come into force in China should boost the market there, and companies in Japan are pressuring the government to loosen controls as well.
A report from Wood Mackenzie and the American Wind Energy Association (AWEA) says that future capacity is more likely to be solar than wind, in part because the growth of energy storage favours PV “given ITC access, smaller project size and a more predictable generation profile”.
But, the report adds, “Many of the puzzle pieces are in place. Corporate peer pressure is building, especially in the United States where the failure of federal policy has galvanized the efforts of industry leaders. The cost of renewable energy continues to fall, offering a tremendous long-term hedge against power price inflation. The advent of new financial instruments is further reducing operational risks associated with renewable energy power generation and allowing smaller corporations to join the fray. The energy transition is progressing, and the electrification of transportation, HVAC and a variety of industrial processes will increasingly focus corporate attention on how they procure power.”
Date: Sep 9, 2019