The secret to affordable renewable energy

In a series of blog posts curated by the World Economic Forum’s Climate Change Initiatives, a number of leading voices will present their perspectives on climate change. Contributions are linked to the Forum’s Green Growth Action Alliance project and the Forum’s Global Agenda Council on Climate Change. In the following post, Miranda Ballentine, Director of Sustainability for Wal-Mart, explains her company’s approach to renewable energy.

We’ve all heard it before – if you increase supply of renewable energy (government requires minimum percentage of renewable supply) and drive down the costs of renewables (through government subsidies), demand will follow.

But what if we flipped this equation on its head? What if instead we asked ourselves how the world could unlock the power of energy users – large and small – to create such high demand for renewable energy that the prices would come down naturally?

Wal-Mart is proving that this can work. As a major global energy consumer, our goal is to be supplied by 100% renewable energy. In the United States, Wal-Mart is ranked the top company in terms of solar capacity, and came in first for onsite “green” power usage under the EPA’s Green Power Partnership programme. In 2010, we directly produced or procured 1.1 billion kWh of renewable energy, enough to provide renewable power to a city of a quarter million people in the US, or 3.8 million in India.

As opposed to “offsetting” our non-renewable power by purchasing renewable energy credits, our approach is to drive new renewable energy projects directly, primarily through long-term power purchase agreements, as well as occasionally through direct investment or green power purchases. The benefit to this approach is that it guarantees a predictable stream of income, which is what financiers, banks and renewable energy developers say is the key to the low cost of capital and preferred financing arrangements.

When Wal-Mart promises to buy the electricity, the project can get low-cost financing, can get built and can deliver electricity at or below non-renewable power prices. Wait, did I just say “at or below non-renewable power prices?” Yes.

True, production and tax subsidies help. True, leveling the playing field for less mature technologies would help, but the key here is for large, credit-worthy buyers (“offtakers” as they say in the industry) to promise to buy the electricity and to do so before the first shovel breaks ground.

So, what’s stopping Wal-Mart and other big energy buyers from doing more of this? You guessed it: policies. Instead of just quotas and subsidies, energy buyers need more market freedom to be able to go directly to renewable energy developers to negotiate a power purchase agreement. Competition is a good thing for renewables. Even in a nationalized, highly regulated system, Mexico has accomplished this through independent power generation permits.

We need reliable electrical grids and fixed transmission charges to ensure that electricity can be transported at reasonable prices from areas of high renewable resources to places where our stores are.

We need expedited and modernized permitting to ensure environmentally sound projects, but with less red tape. And we need supply-side policies to consider the demand-side impact.

For example, Feed in Tariffs (FITs) that provide financial benefit for renewable generation, but also allow the onsite renewables to be consumed onsite, would allow more energy consumers to generate their own supply. The United Kingdom has accomplished this through their simple generation, plus export tariff scheme. Options are good for renewables.

Author: Miranda Ballentine is Director of Sustainability for Wal-Mart Stores and Co-Chairs the World Economic Forum’s Renewable Energy working group of the Green Growth Action Alliance.

Image: Picture of rows of solar panels facing skywards REUTERS/Handout