Joe Haugen: As fossil fuel prices rise, the cost of sustainable energy sources, notably solar, has dropped significantly. In the last decade, solar and wind costs have dropped steadily, with commercial rooftop photovoltaic (PV) costs dropping by nearly 70%, according to the National Renewable Energy Laboratory.
Ultimately, it’s important to understand how the energy landscape in the U.S. is evolving and the impact that the sustainable energy transition will have on both the power grid, and how consumers interact with it. We’re in the middle of a critical transition period, shifting from a stage in which the grid reacted to consumer demand, to one in which generation fluctuates more — and in which end users will need to be more flexible. Investing in sustainable energy and technologies like solar power and battery storage could help your retail business be better prepared for this future and minimize risk by hedging against rising energy prices. Remember that there isn’t a one-size-fits-all approach to sustainability, and your energy options should be tailored to your retail business’ needs.
RL Pro: How will the volatile gas market of 2022 affect retailers in 2023?
Haugen: When you hear the term “market volatility,” you might assume it equates to higher prices. While this is often the case, the adage “what goes up must come down” still rings true for the energy market. While energy markets are naturally cyclical, it’s been several years since we’ve experienced volatility and price fluctuations like we have in the last 18 months. This volatility is due to a few factors: First, the U.S. energy market is increasingly driven by global energy demands. Second, the U.S. energy grid is in the middle of a massive transition from coal to natural gas to renewable energy sources, and most of our electricity in the U.S. is now produced by natural gas. So, when we see volatility in the gas market, there’s a direct — though lagging — impact on the power markets and the cost of electricity. At the same time, we continue to increase demand for electricity through the electrification of technologies that historically ran on fossil fuels, such as electric vehicles and heat pumps.
Many of these underlying fundamentals driving volatility are still present in early 2023, and we’ve recently lucked into lower prices. The recent low prices in the U.S. are driven by one of the warmest winters we’ve had in decades as well as a fire at a major liquefied natural gas terminal that limited natural gas exports. Low prices are being driven by what many people would consider black swan events, so expecting them in the future isn’t wise, and prices could see similar volatility later this year.
While volatility is still a key factor for your business’ energy decision-makers to keep an eye on, it’s worth noting that having the right energy strategy in place can help you mitigate the risks associated with a fluctuating market.
RL Pro: How are retailers using energy to achieve their sustainability goals, and what challenges do they face?
Haugen: Your retail business’ energy usage makes up a significant part of your environmental footprint — and will likely be a key factor in any ESG goals or sustainability planning.
Sustainable energy options include solar, green electricity and carbon-neutral natural gas, which are generated using renewable energy credits (RECs) and carbon offsets, respectively. Making the transition to green electricity and carbon-neutral natural gas is as simple as working with a trusted energy provider who has experience with RECs and offsets. In addition to investments in on-site renewable generation, RECs can be bought and sold like other commodities and represent a fixed quantity of energy generated from renewable sources. If your business is unable to generate 100% of your local energy from renewable sources like on-site solar, your supplier can purchase RECs on your behalf that certify you’re paying for the generation of a certain amount of renewable energy.
Making the transition to solar energy depends primarily on where your business is located, as guidelines — and potential incentives for your business — vary by state.
RL Pro: What are the first steps retailers who are interested in renewable energy can take?
Haugen: An important consideration is how to choose a retail energy supplier who can look at your needs holistically. Often, multiple companies can be involved, such as a solar developer, retail supplier, broker or consultant. These parties may have contradicting incentives. But a retail supplier who has multiple options can create a package to best meet a retail customer’s needs.
With energy technologies evolving and options increasing, making the transition to sustainable energy may seem daunting. The first step is to take your questions to your supplier. These should include:
- Which emerging sustainability technologies and solutions should we consider now?
- Is solar the right option for our retail operation now – and why or why not?
- How would you manage RECs and carbon offsets for our business?
- What incentives are available at the federal and state level that can support our sustainability investments?
From here, you and your supplier should collaborate on an energy strategy that meets all of your needs, including your sustainability goals.
For retail organizations considering sustainability efforts but unsure where to start, energy efficiency is another great focus. Start by benchmarking your efficiency data to find areas for improvement. According to data from McKinsey, when retailers conduct energy audits in their stores, they typically find opportunities to reduce energy consumption by 20%-30% – and sometimes by up to 50%. Many energy suppliers have tools that can support efficiency data benchmarking and management efforts.
RL Pro: What do retailers need to know about ESG planning?
Haugen: It’s important to note that sustainability and ESG are not interchangeable – and your sustainability goals are unique to your retail business. ESG points to a specific set of criteria that’s likely been set by your investors or stakeholders. In turn, investing in sustainable, clean energy for your business is going to be just one part of your organization’s ESG strategy – but it’s likely to make a significant impact.
The business-to-consumer nature of sales puts retailers in a unique position compared to other industries. According to research conducted by Shopify, nearly 50% of consumers globally are choosing to buy from brands with a clear commitment to sustainability. Making the shift to sustainable energy, then, is just one step. It’s important to communicate to your customer base what changes you’ve made and why.
What’s next: Improving efficiencies in stores may be the easiest way for retailers to tackle sustainable efforts, but the industry needs to grapple with the impact of e-commerce supply chains as well. Shipping, packaging, warehousing and other activities related to online shopping also need to be improved upon in order for the industry to meet its goals and the values of its consumers.