The renewable energy industry, like many others, is experiencing significant turbulence following three years of the global coronavirus pandemic. Project developers are facing a multitude of headwinds impacting their ability to price with confidence and to deliver projects on schedule. Renewable energy buyers are in a crowded field, facing stiff competition to secure the best of those projects. And yet, corporate demand for clean energy is not slowing down.
To understand why, there are three important trends to consider:
- There is significant growth in the number of organizations setting renewable energy goals
- The voracious appetite for renewable energy from the “Big Tech” companies (Google, Microsoft, Meta, Apple, Amazon, etc.) is expected to continue, but only for a few more years before the bulk of their goals are satisfied
- Demand from utilities is expected to take off this decade
Overall, demand for renewables shows few signs of slowing down. This is good news for the climate but bad news for buyers trying to navigate this tight market.
Corporate & Institutional Climate Action Continues to Grow
2021 set another new record for voluntary procurement of renewable energy by businesses and institutions, and public commitments to RE100 and the Science-Based Targets initiative (SBTi) continue to accelerate. The number of U.S.-based companies either setting or committing to set a science-based target tripled from 2020. We expect this to create significant demand over the years ahead.
Among the 200+ American companies to make new commitments to SBTi in 2021, roughly half of those have already established near-term targets. We estimate that this group alone could constitute 20-30 GW of new demand for renewable energy transactions, enough to fuel continuing increases in overall market volumes over the next two to three years.
Setting a credible “Net Zero” goal is the new badge of honor for corporate climate leaders, and a 100 percent renewable energy supply is one of the most impactful (and attainable) levers for early progress on that journey. In fact, SBTi’s Net Zero standard advises companies to target 80 percent renewable energy by 2025 and 100 percent by 2030.
Additionally, the U.S. Securities and Exchange Commission’s newly proposed rules requiring publicly traded companies to disclose Scopes 1, 2, and maybe even 3 emissions will add further fuel to overall demand for large-scale renewable energy supply.
Big Tech Demand to Continue, For Now
It’s no secret that the large tech companies have been some of the earliest and largest movers in the voluntary renewable procurement space, driving over one-half of all executed transactions in 2019 and nearly two-thirds in 2020 and again in 2021.
But have the Big Tech companies satisfied their appetite after record purchasing the last two years? Not quite.
Our analysis indicates that the Big Tech companies may need to procure another eight to 10 GW by 2030 to keep pace with the power needs of new data centers. Much of that procurement activity will likely occur over the next two to three years. We should expect to see more multi-GW years ahead for Big Tech, particularly as they raise the bar by seeking 24×7 carbon free matching on an hourly basis. However, 2021 may have been the peak for the leaders of this buyer group.
The elephant in the room for renewable demand from the tech sector is cryptocurrency mining. Crypto electricity demand in Texas alone is projected to reach 6 GW as soon as 2023—the equivalent of adding another Houston to the grid. Whether this demand will be “green” is an open question, but the expectation is that it could be a key customer for cheap but often oversupplied wind in West Texas.
Utilities Need a lot of Clean Energy to Meet Their Goals
Over the past decade, utilities have largely sat on the sidelines of the renewable energy industry in a ‘wait & see’ mode, but that is shifting quickly due to both policy and market-based forces. Many utilities have Renewable Portfolio Standards to meet by 2025 or 2030. Many also see an important opportunity to be part of the renewable energy journey of their customers and are seeking renewable supply to offer in structured products. And it doesn’t hurt that renewable energy is often now cheaper than fossil fuel energy.
CFR analysis shows that utilities will require approximately 400 GW of renewable energy by the end of the decade. This represents three to four times the expected voluntary demand of commercial and institutional buyers.
Meeting Corporate Clean Energy Demand is the Challenge of the Decade
Averting the most catastrophic impacts of climate change requires an economy-wide switch to clean, renewable energy as quickly as possible.
The very high demand for renewable energy in the U.S. is therefore worth celebrating. It is the hard-won outcome of decades of climate advocacy, technological innovation, public policy, and a rapid decline in cost. There is now a critical mass of private sector leaders for whom the necessity and opportunity of decarbonization is powerful and self-evident.
And, as our last blog explained, there are enough renewable energy projects in development across the U.S. to meet this demand, with more added to the queue each year. This too is worth celebrating.
But the industry is in a logjam. A “perfect storm” of logistical and regulatory issues are blocking renewable energy’s abundant supply from satisfying its high demand. There are public policy solutions, such as investing in regional transmission capacity and ending the trade investigation. If the Biden Administration does not act quickly on these issues, it will be difficult or impossible to meet its stated U.S. climate goals.
What does all this mean for large-scale renewable energy buyers? It means getting projects completed with acceptable economic and risk profiles is more challenging than ever. We believe buyers should not slow down—most are still on the hook to meet ambitious climate goals, after all—but must adjust their approach to succeed.
Kumayl Jacksi, Gavin Ahern, and Kevin Rackstraw contributed to this blog.