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Is Being Renewable Inherently Sustainable?


As SASB sets out to explore the sustainability issues surrounding the Renewable Resources & Alternative Energy sector, the industries that define the sector (Solar Energy, Wind Energy, Biofuels, Fuel Cells & Industrial Batteries, Forestry & Logging, and Pulp & Paper Products) already have very specific connotations and associations in the public mind. Renewable energy offers a future energy system that promises to reduce environmental and social impacts, but the costs of this new energy system must not outweigh those benefits in order to secure the long-term viability of these industries.

 

Many investors and industry-watchers operate under the assumption that firms within the Renewable Resources sector are, by default, sustainability-driven. The reality is oftentimes much more nuanced, however, and such beliefs obscure the myriad issues that can impact the ability of such firms to fulfill their expected sustainability potential.

 

Emblematic of this tension between the perception of inherent sustainability and the more complex reality is the case of the solar industry. As uncovered in SASB’s conversations with industry stakeholders, the intertwined challenges of cost, access, and scale, particularly as they relate to the mitigation of greenhouse gas (GHG) emissions,  continue to challenge the growth of the industry. Large-scale, sustained GHG mitigation from solar would require continued declines in costs. Solar energy faces criticism and regulatory barriers in some states as it is blamed for potentially raising the cost of the electrical grid, thereby increasing energy poverty for low-income customers that continue to depend on traditional grid electricity. Whether or not such concerns are grounded in evidence (a topic of hot debate) the reality is that a combination of reduction of hardware and installation costs, financing mechanisms to make solar more affordable, and new technologies and operational processes to improve integration with the grid, will be necessary for solar companies to grow in the long term.

The EPA found that an 80% price decline for PVs would reduce GHG mitigation costs in the U.S. by 50%. The EPA is using evaluations such as these to support decision-making for implementing GHG reduction strategies.
A 2013 study found the average PV installation costs in the U.S. were $0.49/W, compared to $0.18/W in Germany. This suggests that there is room for serious efficiency gains in the U.S. market.

Another factor associated with long-term growth, and thus the potential to reduce or avoid GHG emissions, is the huge market potential for solar energy in developing countries, through grid-based, mini-grid, and off-grid systems. The energy poverty such countries face is astounding, with over 2 billion people having no electricity access or only intermittent and unreliable access. While some of the major solar companies are working on addressing this market opportunity, the commercial viability of such ventures is not well-established and is in experimental stages. There have been some local successes in energy access, but these have come from non-solar industry players, often smaller companies. SASB will continue to track the progress of the industry on this front, but based on stakeholder feedback, is not including the issue of energy access in developing countries in its standards at this time. However, there remains a significant potential for companies to achieve growth, while stimulating positive social impact through increased energy access, while avoiding increases in GHG emissions.

 

With the examination of these issues and more, it becomes clear that the solar industry sits in a position of evaluating functional and operational tradeoffs, risks and opportunities that should be familiar to nearly every industry. These same concerns can be applied to each of the other industries that characterize the Renewable Resources & Alternative Energy sector just as easily. Accordingly, it is clear that the Renewable Resources & Alternative Energy sector should not be assumed to be inherently and universally sustainable. There are still a plethora of issues that are likely to both positively and negatively impact sustainability, risk, and company valuation.

 

Unpacking these issues in full requires the input of the SASB research team, industry stakeholders, and the public at large. Accordingly, to nurture the growth of effective standards for the Renewable Resource sector, please contribute your insights, thoughts and comments.