Energy officials from the world’s largest economies are meeting in San Francisco with the aim of accelerating the shift to zero-carbon power. Today, they announced a new campaign that will grease the wheels for businesses to buy into renewable energy.
This strategy has a history of working. Just as corporate buyers are driving growth in the clean energy market, they have previously led the adoption of other emerging technologies, from the fax machine to the personal computer. Here’s how businesses can help cutting edge machines make it from the laboratory to your living room.
For most of its long history, the fax machine existed largely as a tool for newspaper publishers. It wasn’t until the 1980s that it became ubiquitous in corporate offices. As fax machines proliferated, each one became a little more valuable, able to connect to a broader network of devices. This, in turn, drove consumer sales.
Fax machines offer an example of network effects. The larger a network becomes, the more incentive there is to join. Electric vehicles offer another example. Each new electric car increases the demand for charging stations. Each new charging station improves the utility and convenience of owning an electric car, which encourages other consumers to buy in. Businesses that purchase EVs or provide workplace charging stations can help expand networks.
“Network effects are critical for alternative fuels, including electric cars and offerings like Toyota’s new hydrogen-powered Mirai,” Mark Jacobsen, professor of economics at UC San Diego, said in an interview. Plus, he adds, “if business car fleets move to an alternative fuel, for example, this could help spread understanding about how the cars feel to drive, maintenance, and reliability.”
Economies of scale
Fifty years ago an IBM computer cost as much as $9 million, required a quarter-acre of air conditioned office space and needed a staff of 60 people to keep it running. Only governments and large businesses could profit from buying one. Through years of building room-sized machines, however, Big Blue developed the manufacturing muscle and engineering know-how needed to produce the IBM Personal Computer.
This is a story about economies of scale. As operations grow, the cost of each unit sold decreases. Clean energy is subject to the same effect. Solar companies are moving more panels, expanding output and improving manufacturing, feeding a virtuous circle of tumbling prices and booming sales. Businesses that buy photovoltaic panels are helping producers reach economies of scale.
“We see businesses helping solar energy reach economies of scale,” Jessika Trancik, an MIT professor of energy studies, said in an interview. “For example, a growing number of businesses are building commercial-scale solar installations, and these installations have been able to capture economies of scale.”
Clean energy is ready to explode
New technologies follow a familiar pattern, lingering on the sidelines until they become cheap and useful enough to be widely adopted. Once the market is saturated, the rate of adoption levels off. This is called the “S curve.” It describes the spread of fax machines, personal computers and a host of other technologies.
Today, clean energy is peering up the steep incline of the S curve, waiting for falling prices to spark rapid adoption. Last year, renewables accounted for a majority of new generating capacity worldwide. Global sales of electric cars grew by leaps and bounds. Businesses can nudge emerging technologies along by helping them reach the scale needed to further drive down costs and improve performance.
Corporations are embracing clean energy
Businesses are driving a lot of the growth in clean energy. That’s because emerging technologies offer a bigger upside to companies that can pay high up-front costs, purchase in bulk and reap the long-term benefits. Corporations can save big by buying solar or wind energy at a low fixed cost through large-scale power purchase agreements. This allows companies to guard against volatility in the fossil fuel market, to say nothing of the reputational perks.
“One main reason that consumer-facing businesses can benefit from going green is the goodwill and support of their customers: there is increasing demand for products and companies that are reducing pollution,” said Jacobsen. This cuts both ways. Just as businesses curry favor by buying into clean energy, they also show consumers that emerging technologies are economically viable.
“Businesses can adopt clean energy in ways that are clearly visible to their consumers and employees,” said Trancik, “In this way, they can play a unique and important role in helping to build awareness of the falling costs of several key clean energy technologies, such as solar energy and electric vehicles.”
Apple, Google, Microsoft, IKEA and even News Corp, parent company of Fox News, have made enormous investments in renewables. New generating capacity added by corporations has more than doubled every year since 2012, according to the Rocky Mountain Institute.
As part of the new campaign, today Facebook pledged to getting 50 percent of its energy from clean sources by 2018. Wells Fargo committed to buying enough renewable energy to power 100 percent of its operations by 2017. Several other influential corporations laid out similar goals.
These corporate commitments will push renewables even further, spurring the growth of clean power. Before long, solar panels and electric cars could be just as commonplace as the personal computer.