Facing the Energy Crisis – Key Choices for Corporations

At Davos’ World Economic Forum in May, the head of the International Energy Agency Fatih Birol highlighted the need for greater investments in development of renewable energy sources, as we are in the middle of the first global energy crisis. In Europe, due to soaring prices and limited supply, consumption of fossil fuels has significantly dropped. More importantly, it was accompanied by concerns for grid security issues, blackouts or rationing energy supply by governments and operators.

New solutions for managing energy supply are in strong demand and will be at the core of the energy transition, driven by strategic decisions of corporations. Those solutions will likely impact geographic locations of new businesses, supply chain management and production processes optimization.


Industry Trends and Action Items for Corporations

1. The most effective way to secure energy supply with a stable price is through a Power Purchase Agreement (PPA), a long-term contract for sourcing renewable energy. The corporate PPA market is growing with tens of deals and hundreds of Megawatts signed each month. Among the largest takers of PPA are Amazon, Microsoft, Meta and BASF. 2021 marked an all-time high with 31.1 Gigawatts (GW) purchased globally[1], 65% of which was in the Americas. Europe also saw a record high year with 8.7 GW of deals across the continent.
   
   
2. Manufacturers can improve their processes and ensure efficient use of energy through capital expenditures. Total global investment in renewable energy sources reached an all-time high of $226 billion in H1 2022[2], 11% higher than H1 2021 due to increased investment in renewable energy projects (+12% y-o-y) and funding from venture capital and private equity (+65% y-o-y). The largest market was China ($98 bn), followed by USA ($12 bn) and Japan ($5 bn).
   
   
3. Investment in on-site energy generation through real estate assets/energy storage can also provide a significant competitive advantage for businesses. Additionally, by utilizing on-site energy generation, corporations can expedite internal and external ESG targets by contributing to the development of the local community.
   
   
4. Supportive regulatory frameworks and fostering renewable energy investment through dedicated funding is critical in the long-term. For example, there are various programs within the Recovery and Resilience Plans submitted by EU Member States focused on increasing the installed capacity for generation from renewables and energy storage, as well as electrolysis capacity for hydrogen transport and storage infrastructure. Furthermore, European Commission recently announced a plan to create a new European Hydrogen Bank, aimed at investing €3 billion in establishing a hydrogen market[3].
   
   

The Impact for Site Selection
Resilient renewable energy supply has rapidly become one of the main considerations in the site selection process. Accompanied with governmental support, such decisions will determine where the industry is heading, and site selection advisors have a key role to play in highlighting the opportunities arising from that. As the path to net-zero 2050 was extended due to supply shocks, the current state of the energy market in Europe will demonstrate how renewable energy investments and complementary regulations could help prevent another energy crisis.

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[1] Corporate Clean Energy Buying Tops 30GW Mark in Record Year, January 31 2022, BloombergNEF https://about.bnef.com/blog/corporate-clean-energy-buying-tops-30gw-mark-in-record-year/

[2] Renewable Energy Sector Defies Supply Chain Challenges to Hit a Record First-Half For New Investment, August 2 2022, BloombergNEF
https://about.bnef.com/blog/renewable-energy-sector-defies-supply-chain-challenges-to-hit-a-record-first-half-for-new-investment

[3] EC plans EUR-3bn European Hydrogen Bank, September 14 2022, Renewables Now https://renewablesnow.com/news/ec-plans-eur-3bn-european-hydrogen-bank-797924/