May 8, 2011

Why Companies Keep Investing in On-site Renewable Energy

My latest e-newsletter came out last week. I focused on the seemingly curious situation where companies are increasing investments in renewable energy for their operations. In theory, it's "too expensive" with long paybacks. But the reality is more complicated.


I outlined 7 of the reasons I think companies are going down the zero carbon path. Here's a very brief summary -- see the full post on SLM's site here...

1) For some categories of onsite generation, the economics do makes sense. In particular, onsite biomass in the pulp/paper or textile industries, for example, is often much cheaper than fossil fuels.
2) The genius of the power purchasing agreement (PPA), where solar providers front the capital cost in return for a long-term contract to buy the power.
3) Zero variable cost. Wind and sun are free.
4) Brand benefits. A solar panel on your roof is a nice brand statement.
5) Supporting the growth of an industry. Intel and others are trying to help bring about a larger renewable energy industry which will lower the costs over time.
6) Some buyers have a longer time horizon and don't consider a 7 year payback so long, especially for a long-lived asset like a building.
7) Others have a broader sense of "payback" and ROI. A change of mindset could help companies include the risk hedge of having predictable energy costs and other less tangible value.

For a bit more detail on these 7 and some examples of recent renewable energy announcements from companies such as Ford, P&G, and IKEA, see the full e-letter.

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