Don’t let financial capital stand in the way of your sustainability targets
Tim Wynn-Jones of Centrica Business Solutions talks innovation in sustainability financing as a route to net zero
In July, I spoke on a round table for edie around how businesses are shifting strategies towards a green recovery. As a business, a significant proportion of our emissions are scope 3, i.e. those downstream of our business, in the main the emissions of our customers. To mitigate these, we have lobbied hard for a ban on gas boilers in new build homes for instance and we are helping businesses big and small to step up the pace on sustainability.
For our business customers, we are focusing on two main strands of innovation:
- A focus on future technology.
- A focus on new innovative financing.
The round table audience revealed that access to capital is a challenge in a post-COVID world. But, to be honest, prioritisation of capital in to non-core business areas such as energy was a challenge prior to lockdown and it’s only been exacerbated by what for most has been a business slowdown.
The role of COVID-19 in sustainability
What’s exciting is that despite COVID, some of the world’s best known brands say they remain committed to the plans for net zero they put in place earlier in the year. These are time bound net zero targets - often well in advance of 2050. Far from reducing the ambition, COVID has created a groundswell of interest from both the public, investors and shareholders that is exerting pressure on businesses to maintain the pace of change.
As a consequence, there is now a real appetite for businesses to engage in zero CAPEX financing.
This will drive big operating changes for many organisations and we predict that rather than paying for energy inputs i.e. electricity and gas, and/or generating assets (e.g. solar PV) businesses will increasingly pay for outputs i.e. heat and power, or even energy and carbon savings.
By wrapping onsite generation with provision of power into an operating cost model rather than capital cost, it’s possible to maintain momentum during financial lean times, something that has proved extremely popular within our customer base.
In addition, we are seeing increased demand across all of our territories for corporate Power Purchase Agreements (PPAs), predominately within heavy industry and technology businesses.
COVID has increased the demand for data services, in the form of web conferencing, social media and streaming, which in turn has increased energy demand. It’s little surprise therefore that tech businesses are keen to procure more power than normal and are keen for that power to be renewable.
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In the past, people have looked at energy projects like they would any other investment, insisting that it meets a standardised internal rate of return (IRR), which often has led to inertia when the numbers have fallen the wrong side of that hurdle.
Consumer demand and shareholder expectation means there is now even greater appetite within the global investment community for clean energy projects, which has a great deal of potential to get energy projects moving.
At this moment, some technologies such as hydrogen remain too costly to be financed at scale. But, heat pumps, the electrification of transport fleets and rooftop solar PV can deliver very strong and predictable investor returns and a route to decarbonisation.
What’s interesting is that a lot of the technologies that will get us to net zero are technically viable today, but the challenge has always been the commercial viability when pitted against other business investments. There are encouraging signs that sustainability is no longer a nice to have, but a must have investment.