Corporate renewable energy in the age of COVID-19
Corporations have been driving the uptake of renewables across the United States for years. Hundreds of companies have made voluntary commitments to transition to 100 percent clean energy, and companies of all sizes have spearheaded renewable procurement deals, adding clean energy capacity to the grid.
That’s all well and good in a bull market. The COVID-19 crisis is infecting every corner of the economy, with massive impacts on energy markets.
Will this upheaval slow corporate clean energy goals?
Renewables still make economic sense
While companies tout their commitment to climate change publicly, in reality, they’re able to make clean energy commitments because of economics.
"Remember, it was never the case that CFOs were looking to pay a premium for decarbonization," explained Jigar Shah, co-founder of Generate Capital and advisor of VERGE Energy, in a phone conversation last week. "Most CEOs that made announcements around climate change did it only in areas where it saved them money. Even with tighter budgets, it still saves them money."
In February, General Motors accelerated its renewable energy goal by a decade, according to Rob Threlkeld, global manager of sustainable energy, supply and reliability. The company plans to transition to 100 percent renewable energy across global operations by 2040, ahead of its previous commitment of 2050. Threlkeld doesn’t anticipate the economic fallout from COVID-19 will change that.
Many companies that have led the charge on renewable procurements are tech giants that enjoy large profit margins, such as Google and Microsoft. Given social distancing has forced people to move their professional and personal lives to the digital realm, it’s possible that those companies won’t be as affected by the economic fallout of the coronavirus, allowing them to continue to be trailblazers.
"I think there’s a group of very profitable tech companies for which COVID-19 will make no difference," said Shayle Kann, managing director of Energy Impact Partners, in a text message exchange. "The question is the next, larger group of companies who are going to be super cost-conscious for a while. For them, if renewables can truly be positioned as a cost-saving tool, I think they keep buying."
The next year will put to the test if companies can keep up their rate of renewable uptake, given the super low oil and gas prices that likely will suppress wholesale electricity prices. It also will have to remain a priority, given many organizations may face other pressing challenges to support their employees and ensure long-term viability.
"While climate change work is important, so are people's jobs, their families and their health. I think most executive leaders are focusing on these concerns in the very near term, which is both understandable and wise," said Steve McDougal, CEO of 3Degrees, a renewable energy and climate change consultancy, in an email. "Compassion and perseverance are critical for addressing the immediate threat of coronavirus. And these same characteristics are also important for governments, businesses and individuals in terms of addressing the longer-term, ongoing challenge of climate change."
The impact of delayed constructions and supply-chain crunches
In the short term, many renewable energy developments are on hold as construction is paused to slow the spread of coronavirus; some planned projects may have trouble sticking to timelines as offices that issue permits are shuttered.
Additionally, global supply chain disruptions may make it harder to get components for renewable energy projects. Key manufacturing hubs are in China, where quarantines slowed production to a halt — though some are beginning to reopen, with lower production rates.
As a result, some renewable projects planned to be completed this year may push into 2021, threatening their ability to use federal tax credits, including the Investment Tax Credit (ITC) for solar and Production Tax Credit (PTC) for wind. This week’s $2 trillion aid package did not include an extension of those tax credits, despite the lobbying efforts of solar and wind advocates. It’s unknown if future economic packages may include renewable provisions. Others are asking the IRS to still offer the credits to projects delayed by supply disruptions.
Threlkeld, well-versed in using car metaphors, calls this a "speed bump" in renewable procurements, but not something with long-term impacts.
"Our projects that we have executed and are in the process of looking at will continue," he said. "The bigger, broader issue, why I say it’s a speed bump, it all depends on how the supply chain manages through this process. Not just the corporate procurements side of things. There’s a whole global supply chain that needs to be managed through. But in the long run, renewables are the cheapest form of new generation, and that’s what everyone is looking for from a financial standpoint."The renewable energy industry has been researching alternatives to its supply chain for a long time, and they have plan B and plan C already on the books.
Shah says that the renewable energy industry has been diversifying its supply chains for five years because of uncertainty with tariffs, so the sector has the benefit of a more diverse supply chain than many other industries.
"I think we are definitely going to be affected by supply chains, no doubt in my mind,” he said. "But the renewable energy industry has been researching alternatives to its supply chain for a long time, and they have plan B and plan C already on the books."
Financing renewable energy projects in a post-COVID economy
The other threat to renewable procurement trajectory is if the economic crash leads to a crunch on financing. Shah expects capital to still be available.
"Every bank that I’ve talked to has told me that renewable energy is viewed as AAA in quality," he said. "So they’re all in on investing in renewables."
Threlkeld says corporate demand will be an important factor in securing capital for future projects.
"Markets will be able to build out because there’s still a demand to do it," he said, referring to the hundreds of companies with clean energy goals. "And quite a bit more needs to be built. So the demand is there."
The Renewable Energy Buyers Alliance (REBA), a trade association composed of large corporate buyers, agrees that the financial fallout of COVID-19 will not affect corporate decarbonization goals.
"Large energy buyers signed onto 9.33 gigawatts of renewable energy deals in 2019 and they want those projects to come to fruition," REBA’s CEO, Miranda Ballentine, wrote in an email. "We do expect for company interests and commitments to clean energy to remain strong given they are tied to broader corporate energy goals and emissions reductions targets."
This article is adapted from GreenBiz's newsletter Energy Weekly, running Thursdays. Subscribe here.