Fossil fuels are in the process of turning into fossils once more. The growing imperative to tackle climate change and the falling cost of renewable energy are flipping the traditional carbon-based energy model, and businesses have a key role to play.

Major Risk or Rosy Opportunity: Are Companies Ready for Climate Change? — a report released in June by CDP, formerly the Carbon Disclosure Project—revealed that 225 of the world’s 500 biggest companies (by market cap) reported $2.1 trillion of opportunities related to climate change and the decarbonization of the global economy. These primarily involve low-emission goods and services, renewable energy sources and increased resource efficiency.

For most companies, it costs less to manage climate risks than sustain the damage those risks are likely to cause. According to CDP, the potential opportunities of the low-carbon transition are nearly seven times as valuable as the costs for companies to realize them, making this one of the great investment opportunities of the next few decades.

“Given these findings, investors and stakeholders should expect to see companies investing more heavily in the transition—and if not, [they] should be asking why,” the CDP states.

Renewables Change the Energy Mix

One of the most obvious signs of the transition—and one of the best ways to mitigate climate risk—is the increasing use of renewable energy. The International Energy Agency reports that “the world could install more than 1 trillion watts of renewable power” between 2018 and 2023, “more than the entire current generation capacity of the European Union.”

According to BloombergNEF’s 2019 New Energy Outlook report, PV solar and wind installations are already cheaper to build than new coal- and gas-fired power plants in two-thirds of the world including the U.S., China, India, Germany and Australia. By 2030, this will be the case in virtually every market.

The Falling Cost of Green Power

In parallel with the lower cost of building new capacity, the price of renewable energy has also fallen dramatically, making it a much more competitive alternative to fossil fuels. Since 2012, the cost of generating onshore wind power has fallen 41% to $50 per MWh; the cost of offshore wind production is down 64% to $89 per MWh; and PV solar has fallen 70% to $57 per MWh. (Coal remains between $58 and $73 per MWh, according BloombergNEF.)

“In most markets, adding more cheap renewables to the mix will benefit corporations. It will lead to cleaner electricity grids and could push down the cost of retail electricity tariffs,” says Kyle Harrison, a corporate sustainability analyst at BloombergNEF.

A More Flexible Generation

The adoption of renewables is also being boosted by improved and increasingly affordable battery energy storage, which is following a similar growth and cost trajectory as solar and wind.

Better storage means that electrical capacity is increasingly able to maintain sufficient output when the sun isn’t shining and the wind isn’t blowing. And by 2030, batteries are forecast to be 67% cheaper than today. “It is a matter of ‘when and how,’ not ‘if’ wind, solar and battery technologies will disrupt electricity delivery all over the world,” according to BloombergNEF’s New Energy Outlook.

The report describes electricity systems around the world that have transitioned from large plants running around the clock, supported by smaller units, to a model based on cheaper renewables supported by conventional plants running at lower capacity, and bolstered by batteries and other flexible units.

“Technologies such as energy storage, virtual power plants and demand response can help smooth out the intermittent nature of renewables and provide more consistent power delivery,” explains Harrison. “This will go a long way in combating some of the challenges around regulation, infrastructure and investor perception.”

PPAs: Why Corporations Are Buying Green Energy

While most renewable energy systems are backed by utilities and institutional investors, companies looking to cut their emissions and meet sustainability targets are an increasing source of demand for clean energy projects.

Corporations bought 13.4GW of clean energy through corporate power purchase agreements (PPAs) in 2018, shattering the previous record of 6.1GW set in 2017, and they are likely to buy even more in 2019. Companies signed contracts to purchase 7.4GW of clean energy in 2019 through June, some 2.4GW higher than last year.

CPPAs Explained

A corporate power purchase agreement (PPA) is a long-term contract between a company and a renewable energy supplier that specifies that the company’s electricity is sourced from a specific renewable generation asset at a fixed price. According to Danish renewable energy supplier and PPA vendor Ørsted, “PPAs help stabilize energy costs and enable businesses to contribute towards limiting climate change.”

Utilities are lobbying for more attractive renewable energy regulation, because they want to be able to sell more power to customers who are increasingly demanding low-carbon options. “They need to roll out attractive clean energy buying programs or face losing customers,” Harrison adds.

Danish renewable energy supplier Ørsted recently signed its first corporate PPA in the U.K. with utility Northumbrian Water. “We saw that the traditional way of producing energy was unsustainable, and we needed to move away from it,” says Morten Hultberg Buchgreitz, Ørsted’s Executive Vice President of Customer Solutions, explaining the company’s decision to divest its oil, gas and coal interests to focus on becoming a global leader in offshore wind power and renewable generation. “We need to significantly change the way the world produces and consumes energy.”

Buchgreitz believes corporate decarbonization “will be a very important factor. We see an increasing number of companies becoming more serious about their social responsibilities.”

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Written by Mike Scott, for Bloomberg Media Studios