EY UK Energy blog
Global companies go EMO
Posted: Thursday, 7 March 2013 at 6.30pm
If I mentioned IKEA, McDonalds, Google, Nike and BMW in the same sentence as investment in renewable energy a few years ago, heads would turn and I may have even got a couple of laughs.
Now fast forward to 2013 and, according to our latest Country Attractiveness Indices, boards of all the above companies and more are looking for ways to secure their future energy supply by reducing consumption and investing in various forms of renewable energy – “Energy Mix Optimisation”, or EMO for short.
Typically corporates need to start out by becoming more energy efficient. Take a look at McDonalds. The company has reduced its energy intensity by 20% in the UK since 2007. An investment program of £9k (€11k) per restaurant has yielded an average payback just over two years and annual savings in energy spend in excess of £5m (€6.1m).
Many large companies already have efficiency programmes on the go, and are now switching to a renewable supply. Google has already invested more than US$1b (€0.8b) in renewable energy, mostly in wind and solar projects across the US. In January 2013 alone the internet giant invested as much as US$200m (€152m) in a 161MW wind farm in Texas.
Ikea’s journey in the renewable energy world has been well documented in the media. The company has recently doubled its planned spending on renewable to US$2b (€1.5b) by 2015 and US$4b (€3.0b) by 2020. That’s on top of its current 43MW of PV and 180MW of wind.
And these are just a few examples. Many other global organisations from multiple sectors have also started out on the renewable energy journey: Nike, HSBC, Volkswagen, Nestle, BT, Mitsui, PepsiCo, Cemex, Renault, Sumitomo, BMW and Apple – are all moving into this space.
And investment is not the only option. If corporates want to hang on to their cash, then there are a number of countries where direct power purchase agreements (PPAs) with offsite wind farms or solar parks are a very attractive long-term option.
But what’s in it for these organisations? Why spend time and money on renewable energy?
As well as the clear brand benefits of reducing carbon emissions, an increasing number of these large corporations are also taking these steps in order to minimize their exposure to energy and carbon price rises and volatility. For some this translates into large energy efficiency programmes -keep in mind that for many firms a 20% cut in energy costs represents roughly the same bottom line benefit as a 5% increase in sales – while for others this often moves on to renewable energy programmes, with price stability and long-term cost reductions.
This important new source of capital for renewable energy projects has been warmly welcomed by the industry, which is currently severely capital constrained. Recently renewables developers and equipment suppliers have sought to exploit this trend by reaching out to large corporates with an appetite for power offtake agreements and investment, proposing attractive partnerships and innovative funding structures.
It becomes clear that we are witnessing a major shift. Due to significant shareholder value at stake, energy investments and long-term procurements are now a board-level decision for many large corporates. The fear of rising and volatile costs and brand risk has elevated energy strategy from a tactical and technical challenge to a strategic and financial necessity.
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