October 11, 2022
Renewable energy constituted the largest FDI growth sector in 2021, with projects worth over $80 billion being announced worldwide (source: fDi Intelligence). In addition to generating FDI projects directly, the renewable energy sector also provides an advantage to locations in terms of expanding the capacity and diversity of the energy mix. The benefits to IPAs of a cohesive renewable energy strategy are twofold: first are the societal benefits of a reduction in carbon emissions; second is the increasingly important role played by renewable energy in the location decisions of investors.
Companies across all sectors are committing to renewable energy
In the wake of the Volkswagen “dieselgate” scandal, original equipment manufacturers in the automotive industry have been under increasing pressure to reduce emissions, with many making sustainability a key element of their business strategy. As a result automakers are shifting towards renewable energy across all elements of their supply chain, from securing agreements on the use of green energy with their suppliers to switching to renewable energy at major assembly plants. This highlights that eliminating emissions from the back of the vehicle only solves only one part of the puzzle. Key trends driving this shift include government regulations, consumer demand, and corporate reputation.
This trend is not exclusive to the automotive industry. Companies across different industries have signed up to RE100, a global corporate renewable energy initiative bringing together hundreds of large and influential businesses committed to 100% renewable electricity. Apple, for example, have been 100% renewable in 43 countries since 2018. Additionally, the US Environmental Protection Agency’s Green Power Partnership National Top 100 named Google as the USA’s largest voluntary corporate purchaser of green power. Meanwhile, other tech giants such as Microsoft and Intel have also featured among the top places in the last 5 years. The RE100 currently has over 370 members including companies such as Citi, Coca Cola, Workday, eBay, and HP.
For locations and investment promotion agencies, the consequence of these changing corporate requirements is the necessity to supply potential investors with access to renewable energy.
How does access to renewable energy affect location decisions?
Multinationals in the race to net-zero emissions are increasingly demanding power purchase agreements (PPAs) from renewable energy providers. A PPA is an agreement between the off-taker and the power producer to purchase electricity at set price and for a set period. With the focus turning towards using renewable energy, it is paramount that regions are able to provide investors with satisfactory PPAs for renewable energy. Investors’ demands are increasing and whilst traditional factors such as tax, transportation infrastructure and workforce still matter greatly, a region’s ability to meet investors’ green power requirements has become imperative. For that reason, some companies will simply not consider a location unless their renewable energy needs can be met. Engagement and cooperation with energy providers on the topic of PPAs is crucial for locations to ensure that the process of securing such agreements does not decelerate or hinder potential investment.
What does this mean for investment attraction?
As the race to net-zero gathers pace, and multinationals are under pressure to deliver on their ESG targets, locations that cannot deliver renewable energy to their FDI clients may lose out on potential investments.
Many IPAs are already focusing on attracting renewable energy investment to help achieve national sustainability goals. However, others will find themselves in positions where their government’s approach to sustainability is hampering their investment attraction strategy. In this instance, the responsibility falls on the IPA to advise governments on the significance of renewable energy for investment attraction. As experts in attracting investment, IPAs must be able to inform governments on the importance of adopting a cohesive sustainability action plan that incorporates a focus on renewable energy. This proactive approach can contribute to a sustainable investment attraction strategy, whilst addressing an increasingly important investor requirement.
