Energy Markets

How does direct investing in renewable energy work?

December 10, 2021

Direct investment in renewable energy doesn’t only have a positive impact on our world as we know it. Several other goals can be met for businesses and company owners who choose to go ahead with a financial investment in the green power space. The types of direct investments in the renewable energy sector include onsite and offsite direct investments. 

OVERVIEW

  • What Is Direct Investment? 
  • What Are The Goals Of Direct Investments In Renewable Energy?
  • Onsite Direct Investment
  • Offsite Direct Investment
  • Pros Of Direct Investing In Renewable Energy
  • Cons Of Direct Investing In Renewable Energy

Obtaining an Energy Attribute Certificate is most easily accessible after partaking in direct investments. These certificates and recognitions can help businesses prove their contribution and dedication to limiting their carbon footprint.

We can help your company with sourcing direct investments

WHAT IS DIRECT INVESTMENT? 

When directly investing in renewable energy assets, the producer of renewable energy can simultaneously become the buyer. In this case the energy output and energy attribute certificates are used for their purposes. Direct investments can create a long-term impact on a country’s economy, and are the buying or acquiring of businesses through equity or shares. A trend of direct investments in the renewable energy sector could tremendously transform how sustainability integrates into industries and the common person’s lives. 

The majority of those interested in direct renewable energy investments place their focus on onsite energy solar (e.g. solar roofs) and wind power projects. A refreshing inflow of financial support can provide more employment opportunities, scientific advancements, and improved productivity. These types of investments could enable the investor to become partial or main owner of these power plants and sources. Direct investments however, have also been used to obtain Energy Attribute Certificates (EACs). 

EACs are issued as proof that electricity being generated at that source is green, i.e., being produced via renewable and sustainable sources. As the world shifts focus to being better safeguards of the planet, these certificates may increasingly gain importance in policies, tax subsidies, and overall consumer behavior. Read more about Energy Attribute Certificates in THIS knowledge hub article.

WHAT ARE THE GOALS OF DIRECT INVESTMENTS IN RENEWABLE ENERGY?

Global Overview of Direct Renewable Investments

Direct investments in renewable energy can improve energy security, stabilize access to electricity, strengthen economic development, and mitigate climate action. However, apart from the obvious positive impact of growth in direct renewable energy investments, there are several other goals that businesses and company owners can achieve. 

  1. Certificates for Policies: Obtaining an Energy Attribute Certificate is most easily accessible after partaking in direct investments. These certificates and recognitions can help businesses prove their contribution and dedication to limiting their carbon footprint. More importantly, direct investments have the highest degree of influence over GHG emissions.
  2. Increased Innovation: Direct investments in green electricity by companies increase the capacity for innovation and technology improvement in their own offices and workspaces. Sparking more sustainability innovation, employees and collaborators in the global economy gain awareness of renewable and environmentally friendly knowledge and scope for innovation.
  3. Consumer behavior and planet health: For the general public, direct investments in the green power space by companies help as it encourages businesses. It also helps organizations to lobby for local policy change. This is a refreshing change as compared to an outsourced or foreign direct investment which cuts any organization off from accountability in the locations they operate in. Additionally, consumers grow increasingly mindful of the companies they support online and financially, with sustainability being a huge factor in their decisions. 

Of course, different types of investments occur for various kinds of green electricity sources. Direct investments are names of two kinds; onsite and offsite.

ONSITE DIRECT INVESTMENT

Onsite direct investments are one of the most accessible and convenient ways to prove your green energy consumption. Additionally, you can have it monitored by trusted sources nearby to build a renewable energy power plant directly on the organization’s land. Better yet is to have a direct connection linking your production facility to the company’s operations to resource consumption. This arrangement is commonly called an Onsite Direct Investment. 

In most cases, the company is the owner of the power plant. Sometimes, in a bid to avoid increased upfront costs, companies opt for onsite solar Power Purchase Agreements. They then lend their land to a third-party entity to operate and scale renewable energy. On site solar rooftops and onsite electrical services are the most common.

OFFSITE DIRECT INVESTMENT

Offsite direct investments are those where the organization decides to locate its green power assets at a distance. Very often, company’s do not have the ideal amount of space on their site of operation to build and maintain a fully functioning and reliable renewable energy power plant. Many companies opt for Power Purchase Agreements (PPA) that involve the buying of energy produced on another piece of land not owned by the company.

In the simplest of terms, this is the outsourcing of resources. In these situations, the third party involved are termed the Balancing Responsible Party. These are typically those who are meant to oversee the proper and safe transport and storage of the green power being generated. This arrangement is commonly referred to as an Offsite Direct Investment. 

PROS AND CONS OF DIRECT INVESTMENT

PROS OF DIRECT INVESTING IN RENEWABLE ENERGY

  1. The best solution to cut your CO2-emissions
  2. Smaller upfront costs for onsite direct investment compared to a regular rental or purchase of power generated offsite. 
  3. Flexible accounting treatment
  4. Higher economic returns: According to the International Renewable Energy Agency’s Global Renewables Outlook from 2020, direct investments in green power could limit global temperature rises to below 2 degrees Celsius. However, while this is projected to cost approximately USD 19 trillion, businesses could get returns of USD 142 trillion by 2050. This is a result of more investment in the renewable energy space.
  5. Higher employment opportunities: In April 2020, it was recorded that approximately 11 million people worldwide work in the renewable energy fields, and 3 million in the energy efficiency field. With an increase in direct investments, there will be a drastic increase in job opportunities for locals. Think of 63 million new jobs in Europe and America by the year 2050. 
  6. Green Energy Storage: enterprises established with cemented sources of green power have yet another problem; they struggle to secure a balance between their green power production and their consumption. Each unit of green electricity not used is often wasted due to a lack of storage facility. Direct investment in renewable energy sources could change that, giving enterprises access to storage facilities. 
  7. Impact closer to home: Foreign green energy investment shifts accountability and responsibility to other vendors and experts in a region far away from operations. While that does make an impact on overall global carbon footprints, direct local and onsite investments can help improve local standards of living.

CONS OF DIRECT INVESTMENTS IN RENEWABLE ENERGY

  1. Limitations of the available space: Companies sourcing onsite green power and sustainable sources struggle to find large amounts of power for their operations from one source. The available space on corporate electricity consumers' sites is commonly too small for installing enough renewable capacity for their entire electricity load (e.g., rooftop solar). 
  2. Lack of resources: Corporate electricity consumers often lack the resources necessary to directly establish a reliable evaluation process to invest in the opportunities right for their field of work. For some companies, an onsite solar power investment might be better, but they may not have the resources for it. 
  3. Storage solution: To establish a proper electricity balance means matching the green power production with your consumption every second. This requires a storage solution that increases your investment costs, which increases upfront costs. The trend then shifts towards Power Purchase Agreements due to smaller upfront costs and more flexible accounting treatment. 

A PPA is a common arrangement in which a third-party entity typically installs and operates a renewable power source on site on another property. The client or investor then only purchases the final output of green power. Read more about corporate PPAs in THIS knowledge hub article. Overall, direct investments can provide a much-needed boost not only to sustainability endeavors around the globe but also to local business growth and customer behavior. 

Interested in direct investments in renewable and green sources of power? We will help you structure a contract and the origination of a renewable energy seller.

PROS OF DIRECT INVESTING IN RENEWABLE ENERGY

  1. Decreases your CO2-emissions
  2. Fewer upfront costs 
  3. Flexible accounting treatment
  4. Higher economic returns
  5. Higher employment opportunities 
  6. Better green energy storage
  7. Increased positive impact closer to home

CONS OF DIRECT INVESTMENTS IN RENEWABLE ENERGY

  1. Limitations of the onsite space available
  2. Lack of resources
  3. Few existing and efficient storage solutions

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