Doing it for the money: The publication Environmental Leader asked nearly 400 companies with U.S. operations to identify the main factor in their decision to generate their own renewable energy on site.
Just a few years ago, only a handful of companies in the world were using a substantial amount of renewable energy. But early successes have shown the wisdom of aggressively, albeit selectively, switching to these sources. Costco, for instance, decided five years ago to install solar panels atop 26 of its stores, or roughly 5 percent of its U.S. retail locations. Taking advantage of a 30 percent federal corporate tax credit, the company concentrated its efforts on stores in California and New Jersey, which also had state incentives, and Hawaii, which has the highest electricity rates in the United States. Costco figured it would save 20 to 25 percent on its utility costs in those stores and that the investment would pay for itself in five years. Those systems “have met or slightly exceeded our expectations in terms of power generation performance and return on investment,” says Craig Peal, assistant vice-president of energy and building controls, and Costco is in the process of doubling its initial solar-powered locations.
Now that the Costco experiment, and others like it, are living up to their promise, these examples have helped inspire a broader-based movement toward renewable energy. Motorola gets a third of its energy from renewable sources. Johnson & Johnson gets 40 percent. Intel gets half. Sprint says that it powers 90 percent of its 200-acre headquarters complex near Kansas City with wind farms.
Meanwhile, as the costs of renewable technologies continue to fall, fossil-fuel prices keep trending upward. The price of a barrel of oil, for example, is expected to hit triple digits early in 2011, and there’s less likelihood of a retreat than there was when prices reached similar levels in 2008. “I don’t think anyone denies that the price of energy is just going to keep escalating,” says Paul Nastu, the publisher of Environmental Leader. “We’re definitely moving in a direction where companies know sooner or later they have to make changes.”
Companies that fail to do so face considerable risk. If the price of oil returns to more than $100 per barrel, many businesses, especially in manufacturing and transportation, will be forced to sacrifice profits or pass on their higher costs to consumers, reducing demand and endangering the economic recovery. If a carbon tax of some sort is eventually imposed, those who rely solely on fossil fuels for their electricity will also face higher prices.
Yet even though such risks are well known, some companies still have powerful incentives to continue relying on fossil fuels, especially for electricity. In the IT sector, for example, the trend toward shifting infrastructure from on-site servers to the cloud has produced such intense price competition among cloud-based hosting companies that many data centers are locating where electricity is cheapest—including the southeastern United States, where coal is the leading source of power. Trends like these can offset much of the carbon-cutting progress that corporations are making in other areas.
To be sure, companies use energy in so many different ways that very few have been able to even measure their carbon footprint. A recent survey of corporations by Treasury & Risk, a finance publication, reveals that only 31 percent have done so. “All of this is about companies really understanding the biggest impacts of what they do,” says Joel Makower, the chairman of GreenBiz Group. Yet most companies have so far measured just a part of their energy usage, he adds. “For some it’s IT operations; for others it can be business travel; for some it’s about how consumers use their products.”
The difficulty of capturing the big picture is turning out to be a business opportunity in itself. That’s SAP’s thinking, at least. The company is now moving into the market for selling software that helps other organizations measure their total carbon impact and take targeted action, starting with the easiest and cheapest opportunities to reduce emissions. Likewise, IBM aims to sell products that reduce energy consumption in data centers.
All this isn’t to say that using more renewable energy always makes good business sense. Often it is expensive, and sometimes prohibitively so. But clearly, many companies aren’t waiting for governments and regulations to guide them. They know that rising prices for carbon-based energy sources are putting them at financial risk, and that strategically pursuing alternatives will give them a leg up on competitors who prefer to watch and wait.