Advancing corporate demand for renewables: why are companies switching to green power

A growing number of companies in Europe and elsewhere are switching to renewable energy for their manufacturing plants, stores and office facilities. Renewable energy is allowing more companies than ever to power their operations while realising a number of business benefits in the process.

Companies that have switched to renewable energy are reporting a number of bottom line advantages, including reduced corporate greenhouse gas emissions, diversification of energy sources to hedge against fluctuating fossil fuel prices, as well as strengthening customer relationships and brand differentiation.

One of the main drivers behind companies' decision to go "green" is to reduce the environmental impact of business operations by cutting down their greenhouse gas emissions. This is the case even if a company's facilities are not currently capped under the EU Emissions Trading Scheme. Other benefits include diversifying energy supplies and hedging from fluctuating fossil fuel prices, as well as strengthening a company's stakeholder relationships and differentiating its brand.

Each of these benefits is a "business case" for using renewable energy, in other words, each constitutes a business rationale for management to switch at least some of the corporation's energy supply to renewable sources. Each business case directly or indirectly links renewable energy use to better margins and operating performance. As a result, opportunities exist for organisations to conduct business in an economically and environmentally sustainable manner.

Companies are pursuing innovative project financing and implementation strategies to get these projects off the ground. The Green Power Market Development Group-Europe (Box), a unique partnership of leading European companies, is playing a role in advancing corporate markets for renewable energy in Europe.

LOWER CORPORATE ENERGY COSTS
A common misperception is that renewable energy is always more expensive than energy from conventional sources. Many companies, however, are finding that under the right conditions this is not necessarily the case. In fact, some firms are switching to renewable resources in order to reduce their energy costs.Several types of on-site renewable energy projects can cut costs. Geothermal heat pumps, for example, can reduce heating and cooling expenses at corporate facilities. On-site wind power projects can also be cost competitive if the wind resource and renewable energy incentives are advantageous. In the United Kingdom, for example, Ford, Michelin and Pirelli have all installed three to four megawatt on-site wind parks at their sites providing attractively priced power. In Belgium, Nike hosts a nine megawatt on-site wind park at its Customers Service Centre in Laakdal and receives cost-competitive green power in return.

Biomass is another renewable energy resource that can be cost effective particularly if the biomass residues are a by-product of a higher-value manufacturing process (e.g., wood mill or food processing wastes), if the residues would otherwise have incurred a "tipping" fee when dumped in a landfill, or if they already are being collected in close proximity to the location where they could be used as fuel (thereby reducing transportation costs). Johnson & Johnson switched its distribution center in Schaffhausen, Switzerland to a biomass-fired boiler which uses wood chips from a nearby forest managed sustainably by the local authorities. The project provides cost-effective thermal energy for the site, but also contributes to Johnson & Johnson's global goal of achieving a seven per cent absolute reduction in greenhouse gas emissions from facilities worldwide by 2010, compared to 1990.REDUCE CORPORATE EMISSIONS
As with the Johnson & Johnson example above, switching from fossil fuels to renewable resources can help a company lower its "direct" or "indirect" greenhouse gas (GHG) emissions. Direct GHG emissions are those from sources that are owned or controlled by the company such as emissions from the on-site generation of electricity, heat, or steam. For example, a DuPont manufacturing plant in Uentrop, Germany replaced natural gas boilers with a biomass cogeneration system and thereby decreased its direct emissions of carbon dioxide (CO2). By co-firing biomass with coal at one of its smelters in the United Kingdom, aluminum manufacturer Alcan reduced the site's CO2 emissions relative to burning 100 per cent coal at the facility. Cement manufacturer Holcim reduces CO2 emissions at several of its kilns when it combusts biomass instead of fossil-based fuels.

Indirect GHG emissions are those that are a consequence of the company's activities but that occur from sources owned or controlled by another entity. They include emissions associated with the generation of purchased electricity, heat, or steam. For example, packaging material manufacturer Tetra Pak reduced its indirect GHG emissions by switching from fossil-fired electricity to green power supplied by its retail electricity providers in the Netherlands, Germany and Denmark. These green power purchases are helping Tetra Pak meet its goal of reducing its global greenhouse gas emissions 10 per cent below 2005 levels by 2010. Johnson & Johnson, IKEA, Interface, and others have likewise reduced their indirect GHG emissions by purchasing green power instead of conventional power from their utilities in Europe.

Greenhouse gas emissions reductions, however, are often not ends in themselves. Rather, the goal is to improve the corporation's operating margins. When regulated, emissions effectively become monetised; emitters incur costs in the form of emissions allowance or credit costs, pollution taxes, emissions control equipment expenses, or other mechanisms, depending on the country. Renewable energy can lower these emissions-related operating costs by reducing emissions, a financial impact that is readily quantifiable.STRENGTHEN A COMPANY'S BRAND
Some companies seek to differentiate their brands from those of competitors by being recognised as "green" or as environmentally responsible corporate citizens. Using renewable energy is one such way to enhance a corporate or brand image. Many companies have successfully pursued this strategy. Although initially renewable energy was used more by business-to-consumer industries, a slew of business-to-business entities are now turning to green power as well. Wal-Mart, for instance, is starting to leverage its considerable clout to encourage its suppliers to improve their own efficiency and environmental performance.

Furthermore, on-site renewable energy generation systems can enhance a company's relations with its stakeholders, from neighbors in the local community, to employees, and customers. Switching to renewable energy is one element of a successful CSR strategy. For instance, Johnson & Johnson's commitment to using renewable energy at its facilities in Europe, North America, and elsewhere substantiates corporate values that are important not only to its customers but also to current and prospective employees.

Last, but not least, renewable energy can help strengthen a company's standing with shareholders, especially at a time when many institutional investors are becoming increasingly concerned about corporate financial and regulatory exposure to existing and future climate change policies. Many financial institutions such as Deutsche Bank now examine a company's exposure to climate change policies and impacts when evaluating loans. Likewise, several pension funds, investment banks, and other firms have banded together to form the Institutional Investors Group on Climate Change (IIGCC) to use their collective power to influence the behaviour of companies in which they have invested.

Switching to renewable energy is one way that a company can signal to these and other institutional investors that it is managing its greenhouse gas emissions and, therefore, its climate-related risk.

For more information, contact Diana Profir at dprofir@theclimategroup.org or profir@wri.org.

ABOUT THE GREEN POWER MARKET DEVELOPMENT GROUP – EUROPE (GPMDG-EU)
The Green Power Market Development Group–Europe (GPMDG-EU) is a partnership between The Climate Group, World Resources Institute and 14 major international companies working together to transform the way large energy-intensive companies view renewable energy procurement. Members include BT, Dow, DuPont, General Motors, IBM Europe, IKEA, InterfaceFLOR, Johnson & Johnson, Michelin, NIKE, Staples, Tetra Pak and Unilever. In 2007 GPMDG-EU announced the completion of its first 100 megawatts of green power projects at 50 corporate facilities across 16 European countries.
ABOUT THE AUTHOR
Diana Profir has managed the GPMDG-EU since 2005. With more than 10 years' experience in the energy industry, Diana worked at Enron in various roles from origination, business development to risk assessment and control, and more recently as an energy consultant. Diana has an International MBA from Thunderbird in Arizona.

By Diana Profir, The Climate Group and World Resources InstituteTHE BUSINESS CASE