Corporations are at the forefront of powering renewable energy adoption. In 2021, corporations purchased a record 31.1 gigawatts of clean energy, up nearly 24% from the previous year. Over 65% of those purchases came from United States corporations and 50% of those companies were large technology companies.
Companies face increased pressure from investors, consumers, and regulators to transition to renewable energy sources. In response, many companies released aggressive 100% renewable energy targets through corporate sustainability commitments. These commitments are pushing companies to find ways to develop and purchase clean energy.
Companies also continue to feel the effects of a volatile energy market caused by the European energy crisis. Spiking energy prices led many companies to find ways to hedge against such volatility and secure favorable rates through long-term contracts. These factors act as catalysts for corporations to transition to 100% renewable energy and net-zero emissions.
Why Corporations are Transitioning to Renewable Energy
Corporate adoption of renewable energy is spurred by multiple factors including the European energy crisis, carbon taxes, and green tariffs. These factors are driving forces that incentivize companies to transition to clean energy. Each of these factors helps companies improve costs and reduce pressure from investors clamoring for decarbonization.
Natural Gas Shortages
The European energy crisis highlighted the importance for corporations to transition to renewable energy. During the crisis, Europe faced unprecedented natural gas prices and an increasingly volatile energy market. For companies, these prices affected their profitability and bottom lines and served as a potential catalyst for adopting renewable energy.
While installing solar panels and wind turbines represents a long-term solution, companies still need to hedge for the short-term crisis and reduce risk exposure to energy market volatility caused by the energy shortage. In order to accomplish this, many companies purchase clean energy directly from utilities and renewable energy companies to reduce their reliance on traditional markets.
Similar to other energy markets, corporations enter into long-term power purchasing agreements that lock in rates over an extended period of time. This protects corporations from the volatility in energy markets and reduces their exposure to price spikes caused by energy shortages.
Green Tariffs (incentive)
Utility green tariffs provide companies with access to renewable energy. Though this is a relatively new program, these U.S.-based incentive programs enable large corporations to purchase bundled renewable energy at a special utility tariff rate. Green tariffs differ from state to state and are offered by utilities in regulated electricity markets with approval by state public utility commissions.
Under green tariff programs, utilities act as the middle person between large companies they contract with and renewable energy producers. The utility sources 100% renewable power from projects they own or contract with independent power producers in the local grid or region. Companies receive renewable energy at a special utility tariff rate.
Green tariff programs typically involve corporations signing long-term contracts with utilities to source renewable energy on their behalf. The long-term contracts allow them to lock in favorable rates that reduce their exposure to potential energy crises and short-term price volatility. These programs may also act as a bridge for companies before they develop renewable energy sources for themselves.
Companies face increasing pressure from regulators, investors, and consumers to set aggressive net-zero emission goals. In order to reach net-zero emission goals in the short term, programs like green tariffs, carbon offsets, and carbon credits are key drivers for companies to transition to renewable energy and reach net-zero emission goals.
For many companies that lack access to green tariff programs, they must source renewable energy themselves, rely on carbon credits, or purchase carbon offsets. Carbon offsets are produced by companies when they engage in an activity or project that generates a verifiable reduction in carbon dioxide emissions such as building a wind farm, planting trees, or preserving the rainforest. These offsets generate carbon credits that companies use to reduce their emissions or sell on the carbon credit market.
Carbon offsets enable companies to reach net-zero emissions in the short term while transitioning to renewable energy sources. Generating carbon credits through carbon offset programs also presents a lucrative business opportunity for many companies. Not only are they able to offset their emissions, but they also may sell the excess credits on the market and create a new revenue stream.