Corporate demand for zero carbon electricity is driving governments to make it easier for companies to sign power purchase agreements
Renewable energy is making serious inroads into the world’s energy markets, but that growth is very uneven, with the Asia-Pacific region among the most challenging for businesses that are looking to go renewable.
New research from RE100, the global renewable energy initiative, shows that although renewables are now the cheapest sources of energy in most markets, they can face challenges in certain markets as a result of limited availability, regulatory complexity and the high costs that these cause.
A growing number of companies, including some of the world’s largest corporations, are looking to switch to 100% renewable power to cut their emissions but are finding that they cannot do so in every market. However, addressing the barriers to companies buying clean power would create huge unrealised opportunities, RE100 says.
The report is based on data from 261 major businesses that have committed to 100% renewable electricity and have bought clean power in more than 120 global markets.
Australia, mainland China, Indonesia, Japan, Singapore, South Korea, and Taiwan are among the 10 most difficult geographies cited by RE100 members for sourcing renewables. For some of the companies making the most progress this is making a global 100% goal difficult to achieve.
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In South Korea, for example, a lack of availability and regulatory barriers are the main challenges. According to BloombergNEF, South Korea is set to miss its 2025 42.7GW wind and solar target – by almost 75%. Development lead times for offshore wind projects are long (10 years), and companies cannot sign direct PPAs with energy companies or Kepco, the national utility.
There is reason for optimism, however, with the introduction of the Government’s Green New Deal. From January 2021, in line with South Korea’s new goal to reach net zero emissions by 2050, the Green New Deal is expected to encourage third-party PPAs and introduce Korea Renewable Energy Guarantees of Origin (K-REGOs) – the latter after a six-month delay.
In Taiwan, prohibitive costs are the biggest challenge. BNEF figures show that ground-mounted solar photovoltaic (PV) projects cost twice as much to build in Taiwan as in mainland China because of higher land prices, more expensive modules, and a lack of competition in the contractor market.
Last year, the Renewable Energy Development Act was amended to enable energy companies to sell renewable power through wheeling and direct supply, but high feed-in tariffs make financially unattractive for solar power generators to terminate contracts with Taipower in order to supply to companies.
Japanese companies cite high costs of renewables and limited availability as the biggest problems. Large-scale procurement options are limited to hydro plants operated by regional utilities and FiT-certified renewables.
“Yet there is reason for optimism,” the report says. “Renewable electricity consumption has risen substantially in Japan over the last five years following the introduction of the FiT. In early 2020, the growing demand for renewable electricity from RE100 members was cited in Japan’s COVID-19 economic stimulus package as a reason for allocating almost $50 million to help develop onsite PPAs.”
As the Government revises its Basic Energy Plan over the coming months, there is a key opportunity to unlock further corporate sourcing of renewables. A more ambitious renewable electricity goal would send a positive market signal. Allowing offsite corporate PPAs between consumers and generators directly will lead to more market competition and drive down costs.
Hiromitsu Hatano, manager, Sustainability Strategy & Decarbonisation at Ricoh, the first Japanese company to join RE100, said: “With the new 2050 carbon neutrality goal, the strengthening of the power grid system, deregulation and a 2 trillion-yen decarbonisation research fund, the next 10 years will be a period of great change for the renewable energy market in Japan.”
Australia is another market where costs are prohibitive, with renewable energy certificates costing almost US$40, compared to $2 in Europe.
These barriers explain why RE100 members are running on 81% renewable electricity in Europe, and 59% in North America, yet in Asia-Pacific the figure is as low as 16%. However, the demand is clearly there – 42% of new RE100 members over the past year came from Asia-Pacific. As members increasingly engage manufacturing supply chains on the need to switch to renewables (52% of responding companies are now doing this), Asia-Pacific represents the fastest growing region for business demand for clean energy.
One area of unrealised investment opportunity for Asia-Pacific comes from direct power purchase agreements (PPAs), which represent direct trade between renewable electricity suppliers and corporate buyers of all sizes. BloombergNEF reports that there have only been 75 off-site corporate PPAs in the Asia-Pacific region to date, totalling 4.5GW, compared to 233 in Europe for 14GW and 43GW from 959 deals in the US, where market conditions are more favourable.
In many challenging Asia-Pacific markets, the opportunity lies in governments more easily allowing these deals to be made.
“Corporate demand for renewables is driving down costs and driving up investment across the world. However, some markets are not benefitting as much as they could from this demand-driven energy revolution, due to outdated regulation, and high costs that often result,” said Sam Kimmins, Head of RE100, the Climate Group. “Tackling these issues should be an easy win for governments seeking a green economic recovery from COVID, bringing major benefits to public finances rather than costs.”
The RE100 initiative has six global policy asks, backed by RE100 companies, to governments in every market:
- Create a level playing field on which renewable electricity competes fairly with fossil-fuel electricity and reflects the cost-competitiveness of renewable electricity.
- Remove regulatory barriers and implement stable frameworks to facilitate the uptake of corporate renewable electricity sourcing.
- Create an electricity market structure that allows for direct trade between corporate buyers of all sizes and renewable electricity suppliers.
- Work with utilities or electricity suppliers to provide options for corporate renewable electricity sourcing.
- Promote direct investments in on-site and off-site renewable electricity projects.
- Support a credible and transparent system for issuing, tracking, and certifying competitively priced Environmental Attribute Certificates (EACs).
“We’ve already seen some positive steps with Japan, South Korea and the Taiwanese authorities recognising RE100 as a real driving force for change, through companies’ direct operations and increasingly those of their suppliers. China is also a global leader in renewables production and investment,” said Andrew Glumac, senior manager for Renewable Energy at CDP. “Now we need better integration of energy and climate policy in these more challenging markets to boost investor confidence, lower emissions, and help deliver a green recovery.”
The 10 specific markets most mentioned as challenging in the survey were:
Argentina: Renewables not available for corporate sourcing
Australia: Renewables costs still higher than other markets
Mainland China: Regulatory complexity; in some regions renewables not readily available for sourcing while in a few others curtailment remains a challenge
Indonesia: Limited options to purchase renewables
Japan: Renewables costs higher than other markets; limited availability due to shortage of certificates
New Zealand: Insufficient sourcing options, in particular no tracking system currently in place (despite abundant renewables on the grid)
Russia: Energy Attribute Certificates currently not available to purchase and other sourcing options are limited
Singapore: Limited renewables availability: physical space to build new capacity unavailable
South Korea: Corporate sourcing of renewables not yet available
Taiwan: Prohibitive renewables costs