Navigant Research Blog

How Long Can Companies Afford to Neglect Setting Science-Based Climate Targets?

— December 21, 2017

This blog post was prepared with contributions from Vincent Hoen, Jeroen Scheepmaker, and Frank Stern.

During the last 3 years, more than 300 companies have signed up to participate in the Science Based Targets initiative. The combined revenue of these companies runs into the billions of US dollars and includes high ranking Fortune 500 companies like Walmart, HP, CVS Health, and Procter & Gamble. Why are these companies committing to science-based targets? Are they willing to publicly disclose their emissions and commit to reducing their environmental impact?

Increased awareness of environmental responsibility, especially following the Paris Agreement, has increased overall consumer, city, and business willingness to act. The corporate sector is embracing science-based targets as an instrument to provide objective guidance on how to react to increasing pressure to have a credible climate strategy. Science-based targets show the fair contribution of any company to limit global warming to 2° or even 1.5° Celsius.

In addition, science-based targets help companies do the following:

  1. Mitigate climate risks and ensure investor acceptance.
  2. Meet climate disclosure recommendations (e.g., from the Financial Stability Board).
  3. Improve business relationships.
  4. Become a more attractive employer.

Let’s look at these points in a greater detail.

Science-Based Targets Become Part of Overall Credit Rating

Globally, well-accepted rating instruments such as the Dow Jones Sustainability Indices and CDP Climate Leadership Index are integrating science-based targets into their ratings and awarding credits for companies having an approved science-based target. Not committing to science-based targets can lead to lower credit ratings and less client and investor attractiveness.

Science-Based Targets Will Be Part of Recommended Climate Risk Disclosure

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (FSB-TCFD) recommends companies perform scenario analysis on their portfolios to assess climate-related risks and opportunities. Setting science-based targets is the tool for meeting these recommendations, as science-based targets are based on the leading climate scenarios of the International Energy Agency. They provide key insights into the required transformations for a company and a direct link to climate risks and opportunities. By setting science-based targets, companies are also well-prepared for upcoming policies that make a climate impact disclosure mandatory.

Science-Based Targets Result in Improved Business Relationships

An important trend is companies not only focusing on their own operations but also on value chain impacts. For instance, Walmart’s Project Gigaton implemented a suppliers program to achieve its climate objective and science-based target. A solid climate strategy with a science-based target ensures that companies act in line with the demands of the purchasing departments of supply chain partners. Companies can develop more intimate client relationships and secure longer-term contracts when a science-based target is in place.

Sustainability Increases Employer Attractiveness

Last but not least, it is known that companies with a strong climate strategy will be more attractive not only for clients and investors, but also for (new) employees. Young professionals have a strong preference for companies with a green image. A science-based target is a great instrument to drive an ambitious sustainability program.

Benefits of Science-Based Targets

Science-based targets are being embraced on a large scale by corporate leaders because they provide the perfect framework for a credible climate and energy strategy. These targets are at the heart of climate-related risk disclosures and will continue to have an increasing effect on companies’ credit ratings. In addition, science-based targets ensure soft benefits, including communicative value, improved supplier relations, and a more attractive working environment. Acting now allows companies to join the ranks of sustainability leaders and show shareholders, investors, clients, suppliers, and employees that the company has a credible response to prevent climate change.

 

Cities Like Madison Lead the Way to Local Clean Energy

— December 5, 2017

As the Inaugural North American Climate Summit convenes in Chicago, Illinois, cities from across North America are leading the way toward ambitious climate action. The shift to local clean energy, known as the Energy Cloud transition, is creating new space for cities to influence the energy ecosystem. This transition will accelerate even more quickly as the adoption of Energy Cloud platforms supporting smart cities, building-to-grid, electrification of transportation, and more increases.

Imagining the Energy Cloud at Madison

Cities such as Madison, Wisconsin are influencing the Energy Cloud transition through their push for renewable energy and the reduction of carbon emissions. In March 2017, the City of Madison became the 25th city in North America to set the ambitious goal of powering city operations with 100% renewable energy and zero net carbon emissions. Navigant Consulting, Inc. (Navigant) is working with the City of Madison to envision what the future Energy Cloud looks like in this community. At a public forum earlier this year, we created a depiction of an Energy Cloud based on public input about how the City of Madison could achieve zero net carbon emissions by working together with the community to implement energy efficiency, renewable energy, and efficient transportation.

Imagining the Energy Cloud at the City of Madison, Wisconsin

Source:  Navigant (artist credit to Truscribe)

Madison’s “Energy Cloud” strategy includes making its facilities and operations more efficient, adding renewable energy generation, and identifying opportunities to incorporate renewable fuels and electrify its transportation fleet. People play an important role too. Influencing behavior by encouraging active transport, such as biking and walking, can help people reduce reliance on fossil transportation fuels and achieve health benefits through reduced air particulate matter and more active lifestyles. Additional ideas include training vehicle operators and building operators to operate vehicles and buildings as efficiently as possible.

Cities can’t accomplish their goals for renewable energy without working with utilities. The Energy Cloud includes opportunities for cities and utilities to work together. In Madison, the city is talking to two local utilities, Madison Gas and Electric (MGE) and Alliant Energy’s Wisconsin Power and Light (WPL), to identify areas of mutual interest. Topic areas include promoting energy efficiency, expanding solar and wind energy generation, expanding the use of EVs and developing charging infrastructure, and identifying opportunities to build social equity and economic development into these initiatives. The City of Madison and MGE have already made progress toward mutually identified goals: a recent grant will yield the first three all-electric Proterra Catalyst buses in Madison. Discussions with WPL are gaining momentum. The parties are looking at creative strategies such as building solar arrays on sloped industrial sites not well suited for buildings, possibly modeled after WPL’s successful West Dubuque Solar Garden project—the largest single solar array in the state of Iowa.

Leading the Way via People Power and Collaboration

Each city must envision its own Energy Cloud to account for the needs of its own stakeholders, including individual taxpayers, utilities, the business sector, environmental groups, and others. For Madison, people power and collaboration is key to moving closer to realizing 100% renewable energy. Cities like Madison are leading the way to implement an Energy Cloud transformation.

What does the Energy Cloud look like for your city? Navigant has identified five factors for success for cities that are looking to create their own Energy Cloud.

 

Could New Trade Deals Create a Cloudy Forecast for the US Solar Market?

— November 1, 2017

After a lengthy investigation, the US International Trade Commission (ITC) unanimously voted in favor of pursuing protectionist policies on imported solar equipment. The panel found that imports of crystalline silicon PV cells and modules have caused serious injury to the US solar industry, rendering some firms incapable of competing in the global market. To insulate US solar companies from the practices of foreign producers, the ITC agreed to grant President Trump the authority to implement trade protection policies.

Renewable Energy Often Needs Government Support

As cost structures do not always reflect the environmental benefits of green technology, the integration of renewable energy (RE) often requires some form of government aid such as tax incentives, customs duties, or import tariffs to support nascent industries. For instance, Germany’s feed-in tariff scheme under the German Renewable Energy Act created financial security for investors, allowing for healthy market competition within the region to thrive.

Subsidies and tax breaks can also assist solar producers and manufacturers in their efforts to vertically integrate themselves along the value chain, especially when market prices become volatile. For example, a company producing solar cells may want to vertically integrate upstream by manufacturing polysilicon, or integrate downstream by installing PV equipment.

Government support can help alleviate cost impediments associated with integration along the value chain. The spillover effects from German policies, along with other market forces, have created an economic environment suitable for solar technology innovation and deployment. This has allowed Europe to represent 80% of global demand for solar panels for much of the 2000s.

A Global Trade

However, the efficacy of protectionism for the US solar market is up for debate, as the preferential treatment of domestic manufacturers may end up doing more harm than good. Comparative advantages and market imbalances within the RE industry have led to an increasingly globalized supply chain and a growing reliance on international trade. In fact, 87% of all US solar installations use foreign-assembled panels, which means that restrictions on solar imports would increase costs for US consumers. This could severely limit the integration of solar energy and US adoption of clean energy practices as a whole.

US Solar Market

The size of the US solar market at stake within the broader RE industry is grounds for concern. A substantial tariff could lead to the loss of 88,000 US solar energy jobs out of an estimated 250,000. US-based manufacturers have even spoken out against the use of trade sanctions due to the detrimental impact it would have on the entire solar industry.

In fact, researchers at the University of Chicago found that the primary driver of solar industry growth in the United States has not been manufacturing, but rather the increase of installations caused by decreasing costs of solar products. This study highlights the fact that solar employment in the United States is not dependent on manufacturing but on several other subsectors within the market such as installation, sales and distribution, and project development. The US decision to invoke protectionist policies may end up protecting cell and module manufacturing at a great expense to these subsectors.

Policy Ripple Effects

The ripple effects from these new tariffs would be far reaching. Many US businesses depend on competitive pricing along the entire value chain, not just in manufacturing. The solar industry represents one of the fastest growing industries in the country. Consequently, the decision to implement such policies could darken what was once a bright future for a critical industry.

 

Floating Offshore Wind Showing Potential

— November 1, 2017

Offshore wind is notching up impressive cost reduction success, evidenced by record low power purchase agreement prices in recent UK and other European competitive bidding auctions. This is great news, but the game changer is if floating offshore wind foundations could achieve commercial success.

This could reduce offshore wind foundation costs and open cost-effective wind power in locations coincident with large coastal population centers, energy demand, and deep ocean sea beds that currently aren’t cost-effective with today’s variety of fixed bottom foundations. Potential markets are the entire west coast of the Americas, Hawaii, Japan, South Korea, parts of China, South Africa, New Zealand, and many European markets, including much of the Mediterranean.

Floating Offshore Wind Becoming a Reality

With that context in mind, it’s great news to see that floating offshore wind is moving from the conceptual and design phase to actual projects. In 4Q 2017, Norway’s Statoil installed a 30 MW wind farm on the northeast coast of Scotland. It is made up of five 6 MW Siemens turbines installed on floating structures at Buchan Deep, 25 km off Peterhead, Scotland.

The Hywind Scotland wind farm is expected to power around 20,000 households. Statoil believes the project will demonstrate the feasibility of future commercial floating wind farms “that could be more than four times the size.” From the first pilot floating turbine outside Karmøy, Norway in 2009 to the launch of this new wind farm, capital costs have fallen by around 60%-70%. Statoil says cost reductions of a further 40%-50% are realistic for future projects.

Hywind Scotland Wind Farm

(Source: Statoil)

Hywind Scotland

The Hywind project will cover around 4 square kilometers at a sea depth of 95-120 meters. The floating turbines have a total height of 253 meters, with 175 meters of the structures floating above the surface of the sea (to the wingtip) and 78 meters submerged underwater. The rotor diameter is 154 meters. This is only the first step of the project, with the end goal being to develop a large-scale floating offshore wind project of 500 MW-1,000 MW. Statoil is a serious company with serious money backing its efforts, including the company agreeing in a competitive auction round in December 2016 to pay $42.4 million for lease rights to develop an offshore wind project off the New York coast.

Following France’s Example

The Hywind launch comes on the back of the inauguration of France’s first floating offshore wind turbine—Floatgen—in October and represents an important breakthrough for floating offshore wind. It shows it is ready to be integrated into the energy market. Floatgen’s 2 MW turbine features a number of innovative solutions, from the concrete composition and its construction to the nylon mooring lines.

The consortium developer Ideol has optimized some areas of the design and the construction method. It is building its supply chain in preparation for mass production, all with an eye to driving costs down. Ideol says its solution is ideal because it is compact and does not need to increase in size and mass at the same ratio as the turbine nameplate rating. Ideol says it can potentially be adapted to turbines up to 15 MW, the size range the leading turbine OEMs are planning for next-generation 2025-2030 offshore installations.

Offshore Wind Soon to Be a Legitimate Power Option

Floating offshore wind is not yet commercially viable against fixed bottom foundations. Plenty of fixed bottom locations are available, but these two projects show that commercial viability just around the corner. If the past decade has been any guide, with the costs of onshore wind falling 77% in the past 7 years, the wind market has been attacking challenges, costs, and other impediments and disproving doubters. Floating offshore wind is increasingly likely to prove its legitimacy as a cost-effective offshore wind option.

 

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