The corporate and financial case for renewable energy: Michael Eckhart, Citigroup

Author:
Ilario D'Amato
14 February 2017

Michael Eckhart, MD & Global Head of Environmental Finance and Sustainability, Citigroup

LONDON: The business case for going 100% renewable at corporate level is strong and “right now wind and solar are winning”, says Michael Eckhart, Managing Director & Global Head of Environmental Finance and Sustainability, Citigroup, in an exclusive Climate TV interview.

In recent years, he explains, the financial landscape has seen the rise of a number of major corporations in the Silicon Valley – often in the technology sector, led by young leaders with young employees – working towards a more sustainable and prosperous future.

“Interestingly enough, the cost of electricity as a percentage of their revenues is really quite small,” underlines Michael Eckhart, “so they can afford to do it – and these are very profitable companies.”

Even cities and sub-national governments are increasingly joining the race towards a cleaner society: “there’s a case to be made by municipalities,” says Michael Eckhart. “Individual cities - where their electricity department is part of the city government - they have to report to the City Councils,” which are led by political decisions, so “they can decide … they want their cities to be 100% renewable. This is already happening.”

THE BUSINESS AND FINANCIAL CASE

There is also a financial case for companies to go 100% renewable, Michael Eckhart suggests, given that renewables are well suited for long-term, stable investment.

In fact, the cost of fossil fuel generated electricity has a variable cost that is linked to the cost of the raw materials: “If gas prices go up, then I pay more. It’s called a ‘pass-through’,” explains Michael Eckhart. “These decisions were made in the Seventies, when oil and gas prices suddenly took off unpredicted, and so the regulators shifted to a model where those costs would be passed through” to the consumer.

However, in this old model, there is no assurance about the final cost of electricity, because the prices of such fossil fuels are “not predictable, they’re not controllable” and the utility company is not able to constrain fuel costs says Michael Eckhart.

“That’s become the norm, but now there’s a better alternative, which is renewables – particularly solar and wind. The technology is financed to cover a period of 20 years, with very little variable costs, and no fuel costs. This means when we finance a solar or wind project, we’re securing the electric rates for 20 years or maybe even more.”

Unlike fossil fuels, for renewable energy the financial assurance of a constant price for electricity is there: “there’s a very high value to that guarantee price versus an uncontrolled price,” says Michael Eckhart, “so even though a solar project might cost more than a gas-fired project, we know what it’s going to cost - you don’t know what the alternative would be without natural gas. It’s quite an argument, and right now wind and solar are winning that argument.”

As part of Citigroup’s own sustainability strategy, the global bank has pledged to finance clean energy and sustainable energy projects with US$100 billion, from 2014 to 2024. The bank has already committed US$72 billion in just two years, Michael Eckhart points out. “We’re very serious about that, setting a goal that galvanized a lot of bankers and financers to go after that. And it had a terrific effect.”

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