How Corporations Power Renewable Adoption
Companies are using a variety of ways that are driving renewable energy adoption. These include using power purchase agreements, generating, purchasing, and selling carbon offsets, and funding renewable energy adoption across their supply chains. All these methods power the transition to clean energy for corporations.
Power Purchase Agreements
Power purchase agreements are long-term contracts that are typically between a large corporation and a utility company. These contracts last between five to twenty years and may include a set rate to purchase renewable energy. Large corporations lock in a rate that limits exposure to energy price volatility while also sourcing 100% renewable energy through the utility.
Companies leverage power purchase agreements as a hedge to protect against the volatility in the energy market. If an energy shortage occurs, companies with a power purchase agreements have a favorable rate locked in. This security and stability for corporations also serve as a signal to the broader renewable energy industry.
As companies scale, so do their energy consumption requirements. When companies enter into power purchase agreements, they signal a long-term commitment to 100% renewable energy that provides certainty for utilities and clean energy projects. This enables utilities and clean energy projects to invest in further development and expansion.
Carbon Credits and Carbon Offsets
Companies generate carbon offsets when they engage in activities or projects that lead to a verifiable reduction in carbon dioxide from the environment. These carbon offsets become carbon credits that help companies remain net-zero emissions or may be sold on the market for a healthy profit.
In 2021, the value of the traded global markets for carbon dioxide permits grew by 164% to a record $851 billion according to Refinitiv. With aggressive net-zero emission goals, carbon credits are at a premium which incentivizes many companies and projects to invest in carbon offset creation.
Across the United States, the European Union, and China, automakers receive carbon credits for the production of zero-emission vehicles. The creation of carbon credits is a powerful incentive for automakers to produce zero-emission vehicles. In fact, Tesla generated $679 million in carbon credit sales in the first quarter of 2022.
Funding Renewable Energy Projects
While power purchase agreements and carbon offsets function as short to medium-term solutions, companies still face rising costs due to energy crises, rapidly rising carbon credit prices, and increasing energy consumption. In order to control costs over the long term, companies are investing in renewable energy projects across the supply chain.
The global supply chain leaves many companies exposed to energy price risk. The cost of components produced may rise significantly during energy price spikes and lead to higher costs of goods sold. Controlling these costs requires investment in converting suppliers to renewable energy sources.
Apple is investing heavily in accelerating renewable energy adoption across its supply chain. To date, Apple suppliers more than doubled their use of clean energy over the last year to 10 gigawatts and close to 16 gigawatts in total commitments in the coming year. In China, Apple also leverages its China Clean Energy Fund to invest in renewable energy projects that have generated 465 megawatts of clean energy so far.
Corporations Drive Clean Energy Adoption
Corporations serve as leaders in clean energy adoption. They provide powerful signals that create confidence among utilities, suppliers, and investors to invest in clean energy. As more companies set aggressive net-zero emission goals, industries will glean more certainty and security around transitioning fully to renewable energy sources to meet corporate demands. This virtuous loop will continue to drive the transition to renewable energy.
In the United States, power purchasing agreements contribute to this virtuous loop. As companies lock in long-term favorable energy rates, utilities and clean energy projects gain guaranteed revenue streams that enable them to invest further into generating more renewable energy to meet corporate demands.
Globally, the carbon offset market creates a lucrative and large incentive for companies to engage in programs or activities that reduce carbon emissions. As the price of carbon credits continues to rise, many companies like Tesla see enormous benefits for their carbon emission-reducing activities. It also motivates corporations to invest heavily in renewable energy projects to offset their emissions and reduce the need to purchase credits on the open market.
These programs illustrate the importance of companies investing in renewable energy across their entire supply chain to reach net-zero emissions. To control costs, companies must transition rapidly to clean energy generation. Apple continues to pioneer this with their investments across their supply chain and through their Chia Clean Energy fund. These types of initiatives show how companies will continue to be at the forefront of and major catalysts to the rapid global adoption of renewable energy generation.
