Corporate procurement as a new growth driver for wind energy in Asia
The shift of corporate procurement of renewable energy from trend to true market driver is already underway. With dedicated commitment and advocacy, it has the potential to accelerate the energy transition across the Asia-Pacific (APAC) region.
Months of industrial disruption, record-low power demand and fluctuating power and commodity prices have shown us that external forces can upturn our basic assumptions about energy markets. And now, as lockdowns ease and carbon emissions return to pre-pandemic levels, we must also assess how the COVID-19 crisis will impact the pace and scale of the energy transition.
Amid these uncertainties, corporate procurement of renewable energy could become a critical driver to accelerate the growth of renewables. Companies making commitments to long-term sustainability and green agendas are driving new demand for wind and solar energy, with corporates procuring more than 10 percent of global renewable energy capacity in 2019 alone, valued at some US$20-30 billion.
That’s a tiny fraction of the potential, considering the commercial and industrial (C&I) sector comprises two-thirds of global electricity consumption. From data centres, to space cooling, to automobile manufacturing, there is a wide variety of corporate end-users that require an immense supply of power – so why shouldn’t they make this power green?
In January this year, GWEC signed an MoU with RE100, the 240+-strong global coalition of national and multinational companies committing to sourcing 100 per cent renewable energy to power their operations. With RE100 members like Google and Amazon representing more than US$5.4 trillion in revenue and operations in 140 countries, there is strong matchmaking potential to bring this corporate firepower and growing demand for renewables together with wind energy developers, technology providers and suppliers around the world to power the energy transition.
The Opportunity in the Asia-Pacific Region
Corporate sourcing is a particularly compelling growth area in APAC, home to significant industrial and manufacturing activity powered by incumbent fossil fuels in markets such as Japan, India, Vietnam and Indonesia. At the same time, policymakers with increasingly ambitious renewable energy commitments are keen to procure wind energy at the lowest cost. As procurement schemes taper financial support and subsidy mechanisms for new projects, the corporate market offers an avenue to hedge wholesale price risk and secure long-term revenue visibility and price certainty.
More than 40 percent of companies that joined RE100 in 2019 are based in APAC. This growing momentum provides grounds to collectively advocate for open access to renewable energy in the region’s markets. As shown in the graph below, which depicts annual growth of the Corporate Power Purchase Agreement (CPPA) market by volume contracted globally, this is an accelerating trend which has gained traction in the US and Europe, and is set to take off in APAC.
Currently, frameworks and regulation for corporate procurement in APAC are underdeveloped, and many power markets are not sufficiently liberalised or streamlined to support a voluntary market.
For instance, in India the economics of procurement by C&I consumers are undermined by high regulatory charges on open-access transactions at state level, as well as resistance from power distribution companies (DISCOMs) for which C&I consumers are primary revenue centres.
In Taiwan, Ørsted and TSMC recently signed the world’s largest CPPA agreement – a 20-year fixed price contract for the full offtake of the 920 MW Greater Changhua 2b & 4 offshore wind farm. The CPPA price is higher than the Feed-in-Tariff secured by auction in 2018, easing the way for Ørsted to close financing for the project. Yet, some key regulatory and liberalisation reforms must be introduced to maximise the potential of corporate sourcing in Taiwan, which has more than 500 enterprises classed as large-users of electricity.
Vietnam has drafted a Direct PPA (DPPA) pilot programme for off-site renewable energy procurement by large power consumers in the wholesale market, but has capped the two-year programme at 1 GW across registered wind and solar generators.
In Japan, where a significant volume of corporates making renewable commitments are headquartered, the government has set aside US$1 billion of its US$1.1 trillion COVID-19 stimulus package to develop on-site renewable energy generation to support CPPAs. Japan already has two renewable energy attribute certificate (EAC) systems available to corporate buyers, but regulatory barriers prevent large users from directly negotiating CPPAs with suppliers.
Corporate procurement and CPPAs require robust and transparent regulatory environments to ensure that private transactions are permitted and directly negotiable between power generators and offtakers. Grid access and power transport arrangements must be transparent for both onsite and offsite generation. Additionally, there must be accountable and internationally credible EAC schemes – markets with multiple EAC systems, such as Singapore, must ensure that these systems are properly regulated to prevent greenwashing or accounting discrepancies for energy claims.
From Regional Trend to Market Driver
Renewable energy is already cost-competitive compared to fossil fuels, and even cheaper than new coal generation, in markets such as India, Vietnam, South Korea, Japan, the Philippines and Malaysia. Unbundling the region’s power markets, which are dominated by large incumbent utilities, will enable both corporate buyers and renewable energy suppliers to access transactions that provide cost-efficiency and stability.
The investment capital generated by a growing corporate market could also spur additional renewable energy capacity, financing large-scale installations which would otherwise not materialise. And this can go a long way in enabling APAC’s fast-growing markets to meet rising power demand with long-term sustainable supply.
As shares of renewable energy grow in the region’s power systems, the general public will enjoy the benefits of cleaner air, affordable power and savings on consumer products passed onto them by corporates since renewable energy procurement has been found to lower corporate operating costs by anywhere from 1-10 per cent.
The benefits of expanding corporate procurement of renewables are universal, and increasingly recognised as such by policymakers. Larger capital flows, positive employment effects, supply chain build-out and cleaner, more resilient energy systems are among the opportunities brought by a robust corporate market – but delivering these in APAC will require sustained advocacy and cooperation between corporates, wind and renewable industry actors and government.
It will also require broader application of standards for transparency and accountability, not just in power markets but regarding the sustainability pledges made by corporates, such as emission targets using Science Based Targets (SBT) and disclosure requirements aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
Together with our members, RE100 and other partners, GWEC intends to address power market and regulatory barriers to corporate sourcing in the APAC region. The billions in investment capital and large volume of jobs brought onshore by corporates can be leveraged to send a powerful signal to policymakers and utilities to implement reforms that can unlock renewable energy deployment.