The energy transition from fossil fuels to renewables has been gaining traction over the past few years. India has been a front runner in renewable energy deployment globally, and has been actively introducing policy measures and attracting investments in this space. While the central and state governments are creating various regulations and strategies to drive renewable energy adoption, and utilities continue to be the bulk offtakers of renewable energy, the country’s businesses are not far behind in this energy transition journey. Indian corporates are taking significant measures to increase the share of green power in their energy mix, while making commitments to assist in the transition to low-carbon energy systems.
As commercial and industrial (C&I) consumers have high power demand due to their energy-intensive operations, the business community’s decision to go green can greatly help in making the country’s future energy mix more sustainable and greener. For many C&I consumers, renewable energy is more affordable than conventional power from utilities, especially with the declining solar power tariffs.
Further, environmentally conscious consumers and investors are opting for companies that are cleaner and greener in their practices. Moreover, in the current geopolitical climate, with various concerns surrounding energy security, corporates and nations want to plan better and are increasingly betting on renewables over fossil fuels. While some are installing on-premises rooftop solar systems or setting up bioenergy units and solar thermal units, others are procuring large volumes of renewable energy through the open access and group captive routes. Some have even announced targets for renewable energy procurement through the RE100 initiative.
RE100 is a global corporate renewable energy commitment that brings together hundreds of large and ambitious firms dedicated to deploying renewable energy as their only power source. This initiative is led by the Climate Group, in partnership with CDP Global, and aims to accelerate the transition to zero-carbon grids at scale. In 2022, RE100 members reported operations in a total of 189 countries, areas or markets. Further, over 401 companies, globally, have pledged to become RE100 companies and make their operations “100 per cent renewable”.
Corporate power demand accounts for over half of the total electricity consumption in India and around the world. As a result, businesses can become a significant market force driving the decarbonisation of the power industry. Furthermore, the CDP database reveals a consistent increase in climate commitments and action by Indian businesses.
The RE100 initiative can be helpful to businesses in numerous ways. First, in terms of cost savings, in the long run it can help businesses drastically lower their total energy costs. Renewable energy prices have steadily declined in recent years and, in some instances, renewable electricity is now cheaper than fossil fuel power. Companies can lock in long-term energy pricing and decrease their exposure to volatile fossil fuel markets by committing to 100 per cent renewable electricity.
Second, it can help in risk mitigation, as businesses face enormous risks from climate change. These include physical risks from extreme weather occurrences, and regulatory risks from climate legislation. Companies can cut their greenhouse gas emissions and help in the fight against climate change by using renewable electricity.
Third, it can lead to innovation in clean energy technologies and infrastructure. By committing to 100 per cent renewable electricity, companies can drive innovation in the renewable energy sector, and contribute to the growth of a clean energy economy.
Fourth, joining the RE100 initiative can enhance a company’s goodwill and improve its brand image. By committing to 100 per cent renewable electricity, companies can demonstrate their commitment to sustainability and environmental stewardship, which may be attractive to customers, investors and other stakeholders.
The Indian context
In 2019, 50 Indian companies reported their greenhouse gas emission reduction targets. Additionally, 23 companies reported their renewable energy targets and 32 companies identified energy-related opportunities in their direct operations and supply chain. Most of these companies have identified opportunities worth Rs 285 billion in the use of low-carbon sources of energy. As of April 2023, a total of 10 Indian origin companies have been listed in the global RE100 initiative.
C&I firms in India consume around 53 per cent of power, of which only 6 per cent is met through direct acquisition of renewable energy. This includes traditional procurement methods such as open access and rooftop solar. However, due to operational and regulatory constraints, coupled with the intermittent nature of renewable power supply, these methods cannot guarantee 100 per cent renewable electricity supply. Thus, renewable energy certificates (RECs) have often been used as a compliance tool to help obligated entities meet their renewable power obligations (RPOs).
Moreover, a company’s choice of target year for attaining RE100 is determined by how the company wants to achieve this goal. Some companies have policies that require them to get renewable electricity only through direct procurement methods, while others choose to invest in emerging technologies and models. There are many corporates in India that are willing to switch to renewables. However, they are restricted by a limited number of bankable business models, lack of awareness and bureaucratic hurdles. Further, sourcing renewable electricity directly, and at scale, takes longer when done through traditional models.
For the concept of 100 per cent renewable energy procurement to be successful in India, there needs to be a bouquet of attractive options that can be customised according to the energy profiles of different companies. Mechanisms such as RECs can be feasible optional tools for both obligated and unobligated Indian businesses to accomplish their RE100 commitments. While RECs are not a preferred instrument, as they do not cover the physical supply of renewable energy and are often regarded by buyers as an additional cost, carbon mitigation-related certificates can be useful in making consumers switch to renewables. Despite the slump in REC sales, they are anticipated to account for 4-6 per cent of renewable energy acquisition by C&I consumers. Moreover, increased renewable power purchase by C&I consumers is unlikely to have an impact on REC capacity expansion, because the RPO compliance rates of discoms, the major power users, are expected to remain low.
Direct power purchase agreements (PPAs) continue to be a favourable mechanism for C&I consumers for renewable power purchase. In fact, according to the CDP Group, India generally presents the least barriers to accessing direct PPAs in Asia, and delivers 35 per cent of members’ procured volumes of renewable electricity. Going forward, virtual PPAs (VPPAs) can also be considered by corporates. VPPAs, which are contracts between developers and corporates for the purchase of green attributes or certificates, have been used by the likes of Microsoft and Google to meet their renewable energy targets. While some regulatory challenges exist in executing VPPAs, they do present an attractive opportunity.
Renewable energy is the future, and needs to be deployed across all sectors in the near future. Switching to green power offers multiple benefits for corporates, and there has been a visible increase in corporate procurement of renewable energy. Going forward, there needs to be adequate focus on creating simpler regulatory procedures to promote this growing market. Further, there needs to be greater awareness among smaller companies about the implementation of modern technologies in this space. So far, 10 Indian companies have signed the pact to enter the impressive RE100 initiative. In the coming months, more companies will be joining the race, thus doing their part in the fight against climate change.
By Nikita Choubey