You don’t have to sit in an Econ 101 class long to hear this truism: as costs decline, efficiencies improve and demand rises, triggering a virtuous cycle marked by further cost reductions, greater efficiency gains and stronger demand, leading to … well, you get the idea.
It’s an economic law that applies to Teslas, big-screen televisions, laptops, and mobile devices.
And, fortunately, it’s also true for low-carbon power for commercial and industrial (C&I) businesses. Manufacturers like General Mills, 3M, Procter & Gamble, and General Motors have embraced lower-carbon power in recent years as costs have come down. Commercial operations like Walmart, Target, and Levi Strauss have done the same.
Each year the Lazard investment firm produces a levelized cost of energy (LCOE) study for renewable energy. Last year’s study shows continued decline in levelized costs of energy produced by wind and solar generators (Figures 1 and 2). Lazard’s estimates are for utility-scale projects, generally defined as 100 megawatts (MW) or more of generating capacity. These cost estimates exclude subsidies like tax credits.
Figure 1: Levelized cost of energy, unsubsidized, wind power
Lazard’s Levelized Cost of Energy Analysis, version 14 (October 2020)
Figure 2: Levelized cost of energy, unsubsidized, solar power
Lazard’s Levelized Cost of Energy Analysis, version 14 (October 2020)
It’s not only costs that have driven down, and are expected to continue driving down, low-carbon energy technology deployments at C&I sites. Companies increasingly are responding to rising customer and investor expectations around operating sustainably. To the extent that on-site solar power or wind energy generation is cleaner - and cheaper - than power delivered by the local utility, companies can do well by doing good, cutting costs and burnishing their sustainability credentials.
Figure 3 shows dramatic projected gains in commercial solar photovoltaic deployment for the next decade and beyond.
Figure 3: Projected solar generation at U.S. Commercial Facilities
U.S. Energy Information Administration
Most times, corporations acquire renewable energy by contracting with a developer who will build the facility and sell some or all of its electric output to companies under long-term contract called a power purchase agreement (PPA). Sportswear giant Nike is getting nearly 100 MW of electricity from the Karankawa Windfarm in Bee County, Texas, under a PPA with plant developer and owner Avangrid Renewables.
Nike signed that PPA as part of its goal to power a large portion, or even all, of its global facilities with renewable energy. “This agreement enables us to source 100% renewable energy across our owned or operated facilities in North America,” Hannah Jones, Nike’s chief sustainability officer and vice president of its Innovation Accelerator, said in a statement. “Investing in renewable energy is good for athletes, the planet, and for business.”
A few years ago, federal tax credits turned economically borderline deals into slam dunks. But more and more, renewable deals rise or fall on their own operating economics. The tax credits, which are sunsetting, are the proverbial icing on the cake rather than the cake itself.
In an interview with Forbes, Cathy Woolums, senior director of sustainability for Mars, said: “Part of what gives us the momentum is there’s a remarkable business case. We’ve got folks that are negotiating these deals and they’re doing it such a way that so far -- knock on wood -- we are ending up in a positive place financially, deal after deal after deal.”
General Motors is one of many Fortune 500 companies that have taken the decarbonization pledge. In the automaker’s case, it aspires to use only renewable energy in its U.S. operations by 2030. By 2035, all its operations around the world will be powered by renewable energy. At yearend 2020, 23% of the automaker’s global energy demand was met with renewable energy (Figure 4). In the U.S., that number was 21%.
Figure 4: Renewable energy goals and performance at General Motors
GM 2020 Sustainability Report
GM nearly doubled its use of renewable energy over the last decade, the company said it its 2020 sustainability report. Last year it signed green power deals with two utilities in Michigan and one in Arkansas. The automaker is negotiating another deal in Tennessee to power its Spring Hill Manufacturing site, GM’s largest facility in North America.
The U.S. Energy Information Administration projects that solar power from commercial and industrial facilities will increase by 90% over the 2020-2030 period, with further gains expected after that (Figure 5).
Figure 5: EIA Projects continued growth of solar generation from commercial and industrial sites over next three decades.
U.S. Energy Information Administration
A decade ago, renewable energy — either secured through a PPA or built onsite — was mainly for technology companies like Apple, Amazon, and Alphabet, parent of Google. Being on the leading edge of energy was aligned with these companies’ business aspirations of being at the leading edge of technology. But, as costs came down, customer expectations grew, extreme weather became more common, and laws to decarbonize the electricity supply took hold, more and more commercial and industrial concerns discovered the benefits of greening their electricity supply.
Just like the econ professors taught us.
