Powering the future of business with renewables

AMID mounting evidence of climate change, cleaner forms of energy have become a global focus as businesses transition away from fossil fuels. Indeed, rapid developments in technology and shrinking costs have made renewables one of the most competitive energy sources today. To limit climate risks, various countries, including Singapore, are also levying higher carbon taxes and other financial disincentives on businesses to encourage clean energy adoption.  “When we talked about energy, we used to think about it as a commodity, but now people think of energy as a social impact. So I think that’s changing the whole sentiment, the whole culture around renewables,” said Judy Lee, Chair, sustainability committee, SMRT Corporation, at the CFO Connect Symposium event in July, organised by CPA Australia.

Today, the decreasing costs of renewable energy generation, coupled with better efficiency and storage solutions, is making clean energy more accessible than ever. “Technological innovations and improvements in battery storage, hydrogen and panel efficiencies are all contributing towards the goal of making renewable energy more accessible at every scale,” said Eric Jost, EY Asean Energy Leader.  At the same time, the increased allocation of capital towards environmentally-friendly technologies is also ensuring the competitiveness of renewables in the long run, he added. Meanwhile, the participation of corporates in the renewable energy sector as key offtakers or even equity sponsors has enabled new financing for these projects. Policy frameworks such as carbon taxes and green project incentives are also making renewable energy more accessible and affordable.  In terms of new technology, distributed solar or mini-grids are examples of solutions that are gaining popularity in many countries in the region and making green energy more accessible. Instead of large utility-scale renewable energy plants, distributed solar and mini-grids allow smaller townships and businesses to have direct connection and access to clean energy.  “Developers are entering into leasing agreements with these users and taking on the financing of the upfront capex, which makes these solutions more accessible to rural communities and small businesses,” said Jennifer Tay, Infrastructure Leader, PwC Singapore.

  She added: “Infrastructure funds are also investing in these developers which serve to aggregate their projects. The other advantage of the distributed solar and mini-grids solution is that it takes away the issue of national grid connectivity into rural areas.”  Obstacles ahead However, the journey towards cleaner energy is still at a nascent stage, according to analysts, as available options are likely not yet keeping up with demand. And while there has been much discussion over the transition to renewables, fossil fuels still dominate, contributing 70 per cent to 75 per cent of the global energy mix, said Lee. She noted that fossil fuels are also heavily subsidised, to the order of around 7 per cent of global GDP.  One key challenge for businesses when it comes to procurement of green electricity is availability and affordability. “In Singapore, businesses that are looking to transition into greener sources will need to enter into virtual power purchase agreements with renewable energy producers. However, until renewable energy imports become a reality, sources are limited,” said Tay.  The other issue for businesses is the intermittent nature of renewable energy sources, which means that they would need to put in place on-site battery storage, or supplement with other sources of energy. Intermittency also impacts the stability of the power grid, which has a wider impact on the national grid.  Sustainability-conscious businesses are also often constrained by progress of regulatory frameworks. While on-site generation through solar panels on rooftops is allowed in most markets and is the first executed option, it only serves businesses which have access to rooftops, such as warehouses, manufacturing facilities and car parks. Further, solar energy will unlikely meet 100 per cent of consumption requirements.  “Hence, solutions like green tariff and off-site corporate PPAs (power purchase agreements) backed by a competitive renewable energy generation market will be required to fulfil the demand,” said Jost.

  A priority for businesses  Moving to renewables may no longer be a nice-to-have for businesses. Corporates are incentivised to go green by their commitment to do-no-harm, and reduce their Scope 2 emissions, which refer to indirect greenhouse gas emissions associated with the purchase of electricity, steam, heat, and cooling. Multiple corporates have signed up to commitments such as RE100, and are already greening their energy supply.  The guidelines also push businesses to nudge their downstream supply chain to be green, which leads to commitments trickling down to small and medium-sized enterprises. “Apart from cost considerations, businesses now face a reputational and litigation risk for being unsustainable and engaging in activities that harm the environment. Hence, the C-suite must recognise that participation in clean energy needs to move away from being a compliance-driven initiative to one that’s value-driven for the entire organisation,” noted Jost.  Tay notes that CFOs will need to consider the long-term trade-offs in terms of the cost and benefits of implementing or sourcing for greener energy. She said: “It is predicted that if we take into account the climate change cost (carbon taxes, business disruption, insurance, reinstatement cost after natural disasters) into our business planning, it would save businesses more in the long run.”