Renewable vs Nonrenewable Energy: What’s Driving the Transition?

The fossil fuels market has suffered a number of setbacks in recent years, from supply chain shocks to geopolitical crises and continued political instability in oil-rich nations. 

It’s perhaps unsurprising then that 89% of UK businesses report profit losses from energy price volatility. As their operational margins are squeezed ever tighter, cheaper and more reliable energy supplies have become a strategic necessity. 

On the flipside, renewables offer much greater price predictability. This is due to their source fuel (sun, wind) essentially being free. They’re not subject to political and social stability either, something no fossil fuel can claim. Also, considering Wright’s Law together with greater regulatory demand for renewable energy, the only way the cost should go is down.

The climate crisis demanded strict targets, the deadlines for which draw ever closer. In the next 5 years, businesses will need to prove they’ve put the work in to meet them.

For many companies, this represents fewer than two budget cycles to meaningfully transform their operations - a timeline that demands immediate action.

The policy approaches driving the transition include:

• EU’s Net Zero Industry Act requires that 40% of net zero tech be manufactured in the EU by 2030, through the development of CO2 storage capacity. This represents a significant shift in European industrial policy, which now prioritises the production of climate technology alongside conventional manufacturing
• China’s 14th Five-Year Plan looks to reduce energy/emissions intensity through controls on coal consumption and optimising oil/gas use
• India’s National Action Plan on Climate Change, which looks to reduce greenhouse gases by expanding solar to 500 gigawatts by 2030 and improving energy efficiency across all industries

Inaction on renewables and climate-positive agendas will no longer fly. A fear of noncompliance and the business impact of not meeting even elective targets in the eyes of customers, regulators, and investors, also puts the transition into stark economic and business survival terms.

There are a number of tax breaks and funding opportunities available, which have already successfully incentivised hundreds of businesses into undertaking renewable energy projects. 

These include the US Inflation Reduction Act, for example, which targets a 40 per cent reduction in greenhouse gases by 2030 and offers substantial federal funding and tax incentives.

There’s also Japan’s Green Transformation Policy, which targets a 46 per cent reduction by 2030 and net zero by 2050 by offering investment and a carbon levy.

Outside of these major economies, many other nations offer compelling incentives to reduce barriers to entry in the renewables space.

The plummeting cost of renewables has no doubt accelerated the transition to renewable energy use. Companies now claim to be purchasing 29 per cent of their energy from renewable sources. 

However, of almost a thousand companies tracked by the CDP, only 10 per cent have set 100 per cent renewables targets, while less than 5 per cent have energy efficiency targets.

Here are the key reasons behind this disconnect:

Renewable energy purchase agreements allow businesses to claim green energy credentials without necessarily changing the way they operate. 

It’s done through the purchase of renewable energy certificates, which prove renewable energy has been generated from a particular source. However, a company can purchase several certificates and offset these against its fossil fuel consumption, claiming a more favourable ratio of renewable to non-renewable consumption. 

It’s a much easier switch than real organisational change, such as retrofitting buildings (32% adoption according to UK data from PwC), upgrading equipment and processes (36%) or redesigning products to be less energy intensive (33%). 

Currently, reporting frameworks aren’t sophisticated enough to enforce real change in fossil fuel consumption. Many focus on renewable energy sourcing rather than the results of climate-positive organisational change as a key metric for “going green.” 

As well as regulatory targets, businesses are also under pressure to prove their ethical and environmental credentials. Their continued market competitiveness relies on it. As such, it has become far more important to appear to investors and buyers that you’re a “green” company than it is to prove it.

Purchase agreements have made this possible, and businesses have naturally taken the path of least resistance to alleviate these external pressures. 

The predictability of renewable energy pricing has, in this instance, worked against it. The lack of renewable volatility means purchase agreements can offer guaranteed projected savings. So, when you buy renewable energy, you know exactly what you're getting. 

Implementing efficiency projects, on the other hand, involves a level of uncertainty businesses would rather avoid. To prove the ROI and efficacy of these projects, they’d need to make projections and monitor things like usage, equipment performance, and process compliance.

In less than a decade, the average 2033 target date for 100% renewables will be upon us.

By then, pricing logic dictates that renewable electricity should be the dominant source of power, with solar as the single largest source and massive battery storage enabling 24/7 clean power. 

The economic case for renewables is irrefutable. Wind and solar consistently undercut fossil fuels on cost. 

However, true progress in the transition to renewables demands that businesses move beyond convenient purchase agreements and towards genuine operational transformation.

Measurement frameworks will need to evolve to weed out the pretenders and prioritise a provable reduction in fossil fuel consumption over renewable energy sourcing claims. 

The transition is happening, but the pace of real change relies on whether businesses will take the harder path that delivers lasting change or settle for the appearance of progress.