As the price for renewable energy falls, it becomes competitive with traditional sources of electricity, driving the convergence of the renewable power and traditional, fossil fuel-based power markets.
In the final part of this three-part Q&A, market experts at Schneider Electric respond to common questions about energy convergence, focusing on addressing those still not sold on the idea of corporate renewable energy.
Q: Aren’t renewables just propped up by subsidies? Won’t the cost go back up when subsidies are no longer available?
It is true that renewable energy growth has been bolstered by subsidization. However, at scale, renewable prices have reached parity with traditional energy sources in many markets, and the price for renewables is projected to continue to fall. As has been widely reported, unsubsidized hydropower, wind power, and solar power are now three of the cheapest energy sources worldwide, surpassing the price for coal and challenging even the low price of natural gas for market dominance.
This price parity explains the proliferation of renewable power growth in the past decade, which has now reached one-third of generation globally.
It is notable that renewable energy is not the only power source that has benefitted from subsidization. A 2019 report from the International Monetary Fund (IMF) found that 6.3 percent of global GDP in 2015 was to subsidize fossil fuel consumption.
Q: Why shouldn’t we just wait until our government mandates renewable power for everyone? Why act now?
Like other commodities, energy benefits from market competition. While regulation can drive greater renewable penetration—as demonstrated by European countries in particular—it can be slow and inflexible. Free market forces move faster and provide greater opportunity.
Regulation is also hard to predict. Right now, we know that renewable prices are falling, and so energy procurement is, by necessity, becoming more integrated. There are great opportunities to act on renewable power across the world. Future regulation, while increasing renewable energy generation in total, could potentially impact market dynamics in ways that are not necessarily beneficial to companies.
There is also the opportunity, now, for companies to lead on their adoption of renewable power and an integrated sourcing strategy. Leaders in this space have seen many benefits, ranging from the ability to save money to improved shareholder performance and reputation. By staying out of the integrated sourcing game, companies risk falling behind their competition or being called out by others in their space or by their investors or consumers.
Q: Do my customers and other stakeholders really care about renewable energy?
In short, yes. Growing concerns over the economic and health impacts of climate change are leading to greater interest in corporate behavior on carbon reduction than ever before.
Consider some recent examples –
- Amazon’s employees’ shareholder resolution on climate change. Although the resolution failed, it is certain to trigger a cascade of other employee actions inside companies that aren’t doing their part to reduce carbon emissions. Further research demonstrates that both Millennial employees and female employees are more likely to seek employment with a sustainable company.
- Investor action on climate change is increasing, following BlackRock CEO Larry Fink’s annual 2018 letter calling for stronger corporate action on impacts to the common good. Shareholder group Climate Action 100+, with more than $32 trillion in assets, is motivating climate action at some of the largest companies — including Shell.
- A 2018 research report from Nielsen shows that consumers prefer sustainable products. For instance, the report found that sustainably produced chocolate outpaced regular chocolate sales by a factor of x5.
Q: My company wants to move forward with an integrated sourcing strategy that includes renewable power. What should we do now?
A good first step is to determine what you are trying to accomplish with your pursuit of renewable power and an integrated sourcing strategy. Do you want to save money? Reduce your carbon footprint? Hedge against market volatility? Diversify your energy portfolio? Improve your reputation? Or maybe all five?
Is there a good source of market intelligence my company can use to gather information and learn more?
Schneider Electric’s NEO Network™ is an ideal place to begin. The NEO Network is a growing global community of companies accelerating the transition to renewable energy. Within NEO Network’s online platform, companies find the tools, resources, and intelligence they need to set their strategy and make procurement decisions. Membership to NEO Network through the Accelerator Access program is free for all qualified companies. Learn more and join at www.neonetworkexchange.com.
About Schneider Electric
Schneider Electric is leading the Digital Transformation of Energy Management and Automation in Homes, Buildings, Data Centers, Infrastructure and Industries. With global presence in over 100 countries, Schneider is the undisputable leader in Power Management – Medium Voltage, Low Voltage and Secure Power, and in Automation Systems. We provide integrated efficiency solutions, combining energy, automation and software. In our global Ecosystem, we collaborate with the largest Partner, Integrator and Developer Community on our Open Platform to deliver real-time control and operational efficiency. We believe that great people and partners make Schneider a great company and that our commitment to Innovation, Diversity and Sustainability ensures that Life Is On everywhere, for everyone and at every moment.
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