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A REPORT BY HARVARD BUSINESS REVIEW ANALYTIC SERVICES

The New Global Energy Economy: Toward a New Future
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Copyright © 2012 Harvard Business School Publishing. All rights reserved.

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A flexible and positive approach can yield results if it focuses on solutions that are scientifically sound, economically rational, and politically pragmatic.
Executive Summary
THE NEED TO TRANSFORM THE GLOBAL energy supply chain to ensure a more sustainable future is one
of the defining challenges of our times. The problem is stark: scientists estimate the scale of the climate change is such that, by 2050, the world must reduce global carbon emissions by 10 billion–15 billion tons per year below business-as-usual levels. To achieve this, nonfossil fuel energy technology would have to displace one billion tons of emissions on average each year. To meet this challenge as demand for energy surges, a new global energy economy is needed. Not only must we find new ways to create energy efficiencies, but we also must create a new energy mix of clean and renewable energy sources such as hydraulic, wind, biomass, and solar energy. In addition, we must make major changes in our distribution infrastructure as well as international regulatory policies. The complexities, costs, and political issues involved in making these global shifts in energy technology, investment, and policy have stood in the way of turning the promise of sustainable energy into reality. Debate continues over who will lead the way. For instance, in a 2011 global survey on the future of energy, a majority of readers surveyed by Harvard Business Review Analytic Services felt that growing environmental impact and rising costs of energy demanded changes in energy supply and infrastructure. A majority of respondents also said the problems were too big for business to tackle: government had to take the lead in supplying tax incentives, research dollars, and new regulatory policies. But the way forward, outlined here in a series of articles by energy experts and edited by Harvard Business Review Analytic Services, may in fact be a collaborative effort in which government, business, and civil society together explore the best solutions for pushing the global economy to a lower-carbon future. Author Andrew Winston describes how businesses can step forward in energy innovation by recalibrating return on investment (ROI) so that it measures a broader range of value, including “intangible” value generated by investments in sustainable energy. He lays out the case for a corporate portfolio approach to investing in green energy. He also shows how corporations such as Microsoft have moved to price carbon internally, so that managers who choose to use carbon-based power for their factories or transportation will be charged more for their energy. The fee, he posits, will encourage greener choices, just as government-enforced carbon pricing plans propose to do.

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Attitudes toward energy issues

1 2 3 4

5 6 7

8 9 100

QUESTION: Please indicate the extent to which you agree with each of the following statements about energy supply and demand. (All agreeing with statement)

I consider security of national energy supplies to be an issue of global importance Environmental issues in general have become increasingly important to me In my personal life, energy costs have become a greater concern Within my organization, energy costs have grown increasingly important Within my organization, compliance with energy-related regulatory issues has become increasingly important In my opinion, my organization is not doing enough to explore energy options My organization offers little follow-through in implementing more efficient energy practices Within my organization, energy costs are increasingly affecting distribution of products
19% 17% 13% 12% 24% 22% 25% 32%

54% 51% 41% 36%

35% 36%

11%

19%

■ Strongly agree ■ Agree

Infrastructure adaptation views
QUESTION: To what degree, if any, do you think your country should adapt its existing infrastructure to deliver energy from alternative sources?
3% 3% 2%

36%

56%

■ I believe a new energy distribution infrastructure needs to be developed over the next decade ■ The existing energy distribution infrastructure should be adapted to incorporate alternative energy sources ■ I do not think the energy distribution infrastructure needs to be modified to support alternative energy sources ■ Don’t know ■ No answer

Source: 2011 Harvard Business Review Analytic Services global reader survey of 1,748 business executives.

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In another piece, Jigar Shah, former head of the Carbon War Room, argues that technology innovation is not standing in the way of reducing the carbon footprint: in fact, he says that there are hundreds of technologies that have met the technical milestones to profitably offset high-priced oil and coal. Yet although most have been deployed to a small degree, they are still waiting to be “discovered” and have their market potential realized. The answer? Linking deployment of clean energy to economic development. Focusing use of these newer clean technologies in underserved rural areas, as well as emerging nations, he argues, would create powerful efficiencies in energy use, capital investments, and end costs to the consumer. And finally, Aimée Christensen, Special Adviser to the UN Secretary-General’s High-level Group on Sustainable Energy for All, lays out the case for clear, predictable energy policies that benefit both businesses and national and international interests. As energy availability and policy are critically important to the health, wealth, and security of all, it is time for business and governments to work together to create the policies that build a better future. The asymmetry of power and resources between more developed and less developed nations is a deep challenge, she says, but further underscores the need for a collaboratively created policy regulatory design. As leaders gather at Rio+20, it is clear that the issues around climate are complex. The solutions will require innovative policy changes, new paradigms in thinking and investing in energy, and creative negotiating among a wide range of stakeholders. But as the Harvard Projects on International Climate Agreements recently concluded, a flexible and positive approach can yield results if it focuses on solutions that are scientifically sound, economically rational, and politically pragmatic. The world can afford no less.

Support for government role in innovation
QUESTION: What is your view of the role of government in energy innovation and development?

My government should provide tax incentives and research funding to encourage innovation of sustainable energy. My government should provide additional tax incentives and increase regulation of traditional, non-sustainable energy use to encourage alternative energy innovation. Intellectual property derived from publicly funded energy innovation should be available to all on a licensing basis. My government should take control of key energy production and distribution. Government should not be involved in energy development and innovation.
13% 54%

69%

51%

10%

Source: 2011 Harvard Business Review Analytic Services global reader survey of 1,748 business executives.

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FULL REPORT

Andrew Winston
Andrew Winston is a globally recognized expert and speaker on green business and advises leading companies on profiting from environmental thinking. He is the author of Green Recovery and the coauthor of the best seller Green to Gold.

Andrew Winston Author, Green Recovery and coauthor, Green to Gold

Private-Sector Investment in Sustainable Energy: Fixing ROI
Energy innovation presents business leaders with a dilemma: They know they need to reduce carbon emissions and use more sustainable sources of energy. But they can’t always justify the level of investment needed to make renewables a truly significant portion of their energy use.

The dilemma, however, is not unresolvable. What if businesses found a way to more finely calibrate return on investment (ROI) so that it measures a broader range of value, including “intangible” value generated by investments in sustainable energy? ROI has utility, no doubt. The problem is that most companies use ROI as a blunt tool, limiting its ability to measure a full spectrum of value — and leaving strategic opportunities on the table. In order for companies to take on the challenge of sustainable energy and capture its benefits, they must take a new approach to how they think about and measure value.

THE INTANGIBLE VALUE THAT ROI DOESN’T CAPTURE
In many businesses, ROI and its close cousin, internal rate of return (IRR), have migrated from being useful decision-making aids to being mental straitjackets. Companies set absolute “hurdle rates,” with inputs and outputs measured solely in actual cash flows. Just those projects that meet a set standard go forward. In the process, these organizations miss out on making strategic investments that would still pay back in traditional terms — even if it takes a bit longer — but yield much more value than just what’s immediately measurable in cash. Investments in renewable energy are a perfect example. Keep in mind that buying renewable energy does pay off, but it may take longer than a typical company’s two-year hurdle rate. So we’re not talking about bad investments, but ones that often suffer by comparison only because the total value to the enterprise is not normally calculated. For example, using renewable energy in operations reduces reliance on volatilely priced fuels, which in turn reduces risk — and that has value. And it makes planning easier; you know your variable costs on energy will be about zero, which is a very nice number.

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In order for companies to take on the challenge of sustainable energy and capture its benefits, they must take a new approach to how they think about and measure value.
What’s more, companies can realize significant value by demonstrating to consumers, employees, business customers, and other stakeholders that they’re keeping costs and carbon use low. Increasing customer and employee loyalty is very valuable. For their part, consumers are increasingly showing a preference for companies that are maximizing the good they do. In the 2012 Edelman goodpurpose® report, which surveyed 8,000 people in sixteen markets, more than 70% of consumers said they would recommend, promote, and switch to brands doing good things. This number is up twenty percentage points in just four years. For employees, working for a company that demonstrates a commitment both to the ideal of corporate responsibility and to smarter ways of operating is increasingly critical. In PwC’s millennials at work survey, nearly 90% of those surveyed — most of whom were individuals born in the 1980s and 1990s — said they would choose employers with corporate social responsibility values that match their own. In the global war for talent, companies that are doing the right thing attract the best and brightest. Beyond appealing to consumers and pleasing employees, a commitment to sustainable energy and lowcarbon operations can help drive sales with corporate customers. An increasing number of companies want to reduce carbon emissions throughout their value chains, and as a result they’re demanding more of their suppliers. A majority of companies in the Carbon Disclosure Project’s supply chain group — global heavy hitters with far-reaching supply chains that include Sony, Carrefour, Nestlé, HP, Pepsi, Johnson & Johnson, and Unilever — have said that they will assess potential suppliers on carbon performance. Reducing risk and building your brand with consumers, employees, and corporate customers may be considered “intangible” value, but that just means the benefits are hard to measure. The value is no less real.

NEW WAYS TO THINK ABOUT AND APPLY ROI
So how can companies make strategic decisions about sustainable energy investments that take hard-tomeasure value into account? Here are five approaches:

1. TAKE A “PORTFOLIO” APPROACH TO INVESTING IN GREEN ENERGY. An apparel company I worked
with wanted to retrofit two distribution centers, but it faced a tough choice. One lighting retrofit easily met the company’s three-year hurdle rate, but the other did not. So the company combined the two efforts into

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one project that, in total, did meet the hurdle rate. I call this mental trick “pairing,” and some companies go further and combine dozens of projects into a single investment portfolio. The cleaning products company Diversey established two hurdles for projects in its carbon reduction plan, a three-year payback and a cost per megaton of carbon avoided. Out of 120 possible projects ranging from lighting retrofits to solar photovoltaic systems, only thirty met both hurdles, but many met at least one. An expanded ninety-project portfolio, in total, met the double hurdle, and it included renewables that were unlikely to meet both hurdles on their own. Diversey was able to increase its carbon reduction goal from 8% to 25% from 2003 levels and generate a higher net present value.

2. SET ASIDE DEDICATED FUNDS FOR SUSTAINABLE ENERGY INVESTMENTS. DuPont and building
materials company Owens-Corning set aside a portion of their capital expenditures budgets just to fund energy-efficiency initiatives. A few companies are using a similar approach for sustainable energy investments. Consumer products and pharma giant Johnson & Johnson has created an internal carbon reduction fund of about $40 million per year. Managers apply for money to invest both in efficiency projects and in renewables.

3. CHANGE THE ROI OR HURDLE RATE OFFICIALLY. For capital investments, Unilever requires an environmental profile, which may trigger a lower hurdle rate. Industrial giant 3M will often slash the hurdle rate for pollution-prevention projects from 30% to 10%. One of my clients, a large consumer products company, recently lowered the required IRR for renewable energy investments that generate tax benefits, from the standard 12% to 8%. These commitments will pay off over time. A decade ago, Swedish furniture retailer IKEA started allowing ten- to fifteen-year paybacks on solar investments (the paybacks are much shorter now). The company now produces more than 150 gigawatt-hours of renewable energy, about 12% of the electricity needed to power its stores and distribution centers.

4. CHANGE THE ROI OR HURDLE RATE STRATEGICALLY. If companies don’t categorically change the
hurdle rate as IKEA and Unilever did, they can do so informally. Walmart, a famously frugal company, has purchased renewable energy for 75% of its stores in California. Fred Bedore, Walmart’s senior director of business strategy and sustainability, says of Walmart executives’ approach to investments in green power: “There is an ROI calculation on all sustainability investments,” as there is on all projects, but “we look at where the investment gets us. The longer-term payback on solar helps us get to scale down the road.” In essence, Bedore is saying that Walmart knows it can help the solar market scale up, thus lowering its future costs, all while reaping the immediate variable cost benefits of free power. In short, Walmart has tweaked its ROI requirements for green power initiatives to reflect a broader sense of value.

5. PRICE CARBON INTERNALLY. Microsoft recently announced a novel program: It will charge a fee to its
100-plus global offices and data centers for every ton of carbon they produce, mostly from plugging into the electric grid, so-called indirect emissions. The company will use the funds, about $10 million over the next fiscal year, to buy renewable energy certificates (RECs) and carbon offsets.

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A few other companies, in particular BP and Shell, have tried internal carbon trading in the past, but those were “shadow” prices, not actual fees. Microsoft is collecting real money from each office. As Rob Bernard, Microsoft’s chief environmental strategist, says, “If you run one of our offices, and you choose to use carbon-based power, we’ll charge you more for your energy.” The fee will, in theory, move managers to make greener choices.

HUMANITY-SCALE VALUE
The five methods described above are for driving increased direct investment in renewables within the private sector. But a majority of current investments have happened through an entirely different model in which companies spend no money up front. They sign power purchase agreements (PPAs) with another company that generates renewable power on-site. The contracts specify that they buy the power at a rate comparable to that of grid-based energy. In regions with the right incentives and policies in place, this model has been very successful. About 75% of commercial solar installations around the world are under PPAs. But there are solid reasons that companies may want to own their own generation and employ my five ROIshifting tools. Microsoft and many major tech companies, for example, are providing cloud-based services and need huge amounts of reliable power. They may be more comfortable owning that capacity. And the fact is that we’ll need more of all of it — more PPAs and more direct purchases of renewables. We need to transition to a low-carbon economy much faster if we have any hope of avoiding the worst of climate change. Companies need to change their investment models to take into account value that’s hard to measure but no less real. Sustainable energy pays off in many ways. It saves money over time, and it helps save our planet, our economy, and perhaps our species. It’s time for corporate investment models to reflect that humanityscale value.

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Jigar Shah
Jigar Shah is CEO of Jigar Shah Consulting and a Carbon War Room board member. As an entrepreneur and visionary committed to the new “Impact Economy,” in 2003 he founded SunEdison, creating a multibillion-dollar solar services industry. From 2009 to March 2012, he was the Carbon War Room’s first CEO.
Jigar Shah CEO, Jigar Shah Consulting

What Will It Take to Turn the Promise of Sustainable Energy into Reality?
The 1973 Arab oil embargo and the 1979 oil crisis inspired massive investments in alternative energy technology. As a result, today we have hundreds of technologies that have met the technical milestones to profitably offset high-priced oil

and coal. Yet although most have been deployed to a small degree, they are still waiting to be “discovered” and have their market potential realized. Mobile phone penetration has expanded exponentially in the past ten years, but many users have only sporadic access to electricity. In the emerging world, there are more than 543 million mobile phone users who lack electricity at home. These consumers spend the equivalent of $5/kWh to charge their phones using diesel-based electricity — about forty times what we pay for electricity in the United States. In both cases, the technology and the market opportunity exist. The question is, Why are proven technologies underutilized? Similar technological breakthroughs have occurred in other sectors, including transportation and agriculture, but here let’s focus on electricity, specifically three areas:
πππRural electrification πππRenewable electricity expansion πππEfficient electricity use in the emerging world

Each presents a cumulative trillion-dollar opportunity through 2020 waiting for deployment. For reference, Bloomberg New Energy Finance reported more than $150 billion in clean electricity deployment in 2011, $93 billion for solar energy alone. Not insignificant by any means, yet much opportunity remains untapped if we link deployment of new energy technology with economic development.

RURAL ELECTRIFICATION
Traditionally, rural electrification is achieved through government expenditures or guarantees to expand grid infrastructure to every part of a country. The higher-density areas are more profitable than lowdensity areas, but to spread costs out across the network, everyone is charged roughly the same amount for electricity.

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Much opportunity remains untapped if we link deployment of new energy technology with economic development.
Today the cost of extending the grid to rural areas is much more expensive, given the rise in commodity prices such as copper — so high that the densely populated areas with electricity are unwilling to subsidize rural areas. Given these circumstances, governments and institutions are afraid to spend the money, fearing that expected GDP rises from rural electrification will not materialize, making such investments a big political risk. As a result, we continue to have more than 1.6 billion people without home access to electricity and even more with unreliable grid connections.

RENEWABLE ELECTRICITY EXPANSION
Yet technological solutions to this problem exist. Solar lanterns and solar home systems provide individual household power at a fraction of the cost of stringing power lines. The money already expended for mobile phone charging and kerosene lighting provides a stable base of demand that is profitable without government subsidies; such demand is usually not included in demand modeling for clean energy. Typically, there is some government support for these solutions, but it is often used to give away free product instead of catalyzing private-sector investment. Further, the advent of mobile billing can reduce transaction costs substantially, eliminating a costly line item in the payback of distributed units. Take what Luma Light is doing in Sierra Leone. For $1,000, an entrepreneur is provided a central solar charging station with fifty desk lamps with rechargeable batteries. The entrepreneur charges the lights during the day and then rents out the lights for US$0.80/week — a 50% savings versus weekly kerosene expenses. When the batteries run out, the lamps are returned to be recharged and available to be rented out again. Over the four-year life of the lamps, the total revenue is $8,000 — more than enough to pay back the initial $1,000 with interest, create a salary for the entrepreneur, and pay for warranty claims and theft. On the grid side, many countries have electricity infrastructure for high-density populations. The preferred electricity-generation sources are large dams in Brazil, coal plants in South Africa, and nuclear plants in India — all difficult to build today for social and financial reasons. Each country is in the awkward position of having paid for the distribution grids but not generating enough electricity at centralized power generation sources to provide 24-hour-a-day electricity to consumers. These countries and many more are turning to distributed, rather than centralized, energy generation. Distributed generation technologies, such as those based on solar and biomass, are leapfrog technologies and do not require connection to the grid. Solar generation, for example, can happen on the roof of a building.

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In both South Africa and India, there is a feed-in tariff program for distributed solar power plants that can feed into existing distribution grids. Both programs were started recently and are expected to attract more than $1 billion to each country in private-sector investment in 2012. Seeing this example, Brazil has recently confirmed that it, too, will be launching such a program in the coming months. Even countries such as Tanzania realize that the diesel and heavy fuel oil generation they rely on today can be more cost-effectively met by solar, biomass, wind, and other renewable energy technology. But there is more work to do. In Tanzania, a new 667-kilometer high-voltage transmission line is being built by TANESCO between the Iringa and Shinyanga regions for more than $450 million — before any new power generation is built. For the same price, forty regions in Tanzania could install a local 10 MW biomass facility, creating more than 100,000 agriculture and engineering jobs.

EFFICIENT ELECTRICITY USE IN THE EMERGING WORLD
Finally, many countries are starting to acknowledge that they will simply not be able to bring electricity supply online fast enough to meet the growing electricity needs of their people. They recognize that upgrading their existing industrial facilities so as to optimize use of electricity is a must. In many parts of the emerging world, industrial and mining electricity usage exceeds all other uses. Efficiency would free up capacity to sell to others. For example, in Tanzania frequent power blackouts have slowed the country’s economic growth rate to 6.5% in the fourth quarter of 2011, from 6.7% a year earlier. The country’s National Bureau of Statistics (NBS) reported that electricity output declined 1.7% in 2011, whereas it grew 9.7% in the prior year. Plus, low water levels reduced hydroelectric production and maintenance work affecting gas-fueled power generation. The NBS says the country’s electricity crisis caused growth in the manufacturing sector to decline to 6.6% from 9.9% a year earlier (although this was partially offset by growth in the mining sector, which rose to 1.2% in 2011 from negative 9.1% in 2010, aided by an increase in gold production and higher precious metal prices worldwide). Identifying the opportunities is not hard. Implementing them is. Why? Because most industrial users do not have the visibility into their business’s energy needs to invest in energy-efficiency upgrades — even if the investments make financial sense. As a result, companies default to the electric utility company making the investments and simply charging them a fixed payment on their bill to recoup that investment. Yet the electric utilities are pushing back, claiming that they are solely in the business of supplying electricity. They have a hard time expanding their role to include managing both electricity supply and demand. We have a world that does not have a handle on the demand side of the energy equation. As a result, energy is not managed. For example, a utility is not incentivized to help a customer become more energy efficient and more competitive through better energy management, despite the fact that doing so would strengthen the local economy and create more broad-based demand for electricity from consumers, especially where energy is scarce, as it is in Tanzania. In infrastructure, win-wins are rarely enough incentive to move forward. There

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needs to be a change in the way that governments and utility monopolies attract private capital to profitable projects on their network. Accelerating the solutions requires attracting private-sector finance, as most governments simply cannot pay cash for all the electricity infrastructure they need. Attracting private-sector finance requires following these investors’ rules: 1) financeable contracts, 2) smaller projects, and 3) government coordination. The way in which independent power producers work offers best practices on how to finance pay-for-performance contracts. Some of these rules include a creditworthy counterparty, a contract with no way to get out of the contract without making the investors whole, and a clear way to verify the amount of savings/ payments due to both parties without arguments. Investors are actively looking to invest in projects in the emerging world, but they are often limited to projects that are smaller than their total fund size of $100 million. This means that a hundred $10 million projects are often easier to do than one $1 billion project. Also, smaller projects can attract local developers. In most emerging markets, there are hundreds of families with the ability to invest $200,000 in developing a project — perfect for a $10 million project. Larger projects require more development capital, as they usually have a larger environmental footprint. In all these markets, “rules of the road” matter. Governments can often lead on standardized contracts, straightforward negotiation rules, and other best practices to make business more comfortable. Mobile phone deployment took off because ministers of communication coordinated bandwidth and other regulations. The same is necessary in electricity. Providing clear rules of the road may not be mandatory, but it’s certainly very useful.

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Aimée Christensen
Aimée Christensen is CEO, Christensen Global Strategies, advising clients including the Clinton Global Initiative, Microsoft, the United Nations, Duke Energy, and Virgin Unite. She has two decades’ experience in policy, law, and business strategy, including at Google.org, Baker & McKenzie, The World Bank, and the U.S. Department of Energy. She is the 2011 Hillary Laureate and a 2010 Aspen Catto Fellow.
Aimée Christensen CEO, Christensen Global Strategies

Can Business and Government Collaborate to Design a Better Energy Future?
Access to clean, efficient energy underpins the prosperity, security, health, and quality of life of everyone on the planet. Yet too many live without access to

modern energy services, too much energy is wasted, and too many suffer from the health, environmental, and security harms of unsustainable energy. It is predicted that by 2030, population growth and increased energy needs per capita will require approximately double our current energy capacity and an investment of $16 trillion to $25 trillion in order to get there. But what type of energy investments will be made to meet that level of need, and what will their economic, equity, and environmental consequences be? Driving these investment decisions will be technology costs and resource availability, both of which are shaped by the incentives that policy frameworks and other governmental interventions establish — or don’t. It is in business’s direct interest to influence those policies, and the best way to do so is to jettison the old model of business lobbying government from afar and instead employ a collaborative model in which government, business, and civil society together seek the best solutions.

ENERGY, BUSINESS, AND THE ROLE OF GOVERNMENT
Energy is a material cost to many businesses and one that can undermine a business’s economic competitiveness. What’s more, energy often largely determines a business’s environmental impact. For businesses operating in or selling into emerging markets, energy can be an enabler of market growth and opportunity by helping to bring people out of poverty, or it can be a source of unrest and insecurity when communities around extractive industries, for instance, do not have access to energy, including for food and water in times of crisis. What energy a business uses and from what sources are decisions shaped by policy as well as by investor input and public opinion. To a greater extent than ever before, global investments are made by private parties, whereas the government’s key role is to establish the policy and regulatory frameworks to guide those dollars: to determine to what extent investments generate economic benefit, protect the environment, and increase global equity. Governments also can expend their capital in ways that unleash private capital that would otherwise not flow, including reducing political and borrower risk by providing guarantees and by capacity building.

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Clear, predictable energy policies not only benefit businesses, but they also serve national and international interests.
Germany, for instance, provided policy and regulatory incentives to make solar investment attractive. It established a set tariff for independent solar electricity providers to sell into the grid, thereby making investments in solar predictable. As a result, the country now has nearly as much solar-based electricity generation capacity as the rest of the world combined. Renewable energy now meets 20% of the country’s needs, and most of it is generated not by large projects but by distributed small systems, such as solar panels on homes, wind turbines on farms, and biogas plants that process farm waste. Texas has 10,000 MW of wind energy installed, twice as much as any other state in the United States. While Texas has a large and well-distributed wind resource, the rapid growth in the production of wind energy is due primarily to state action: the passage and then expansion of the state’s Renewable Portfolio Standard, the use of Competitive Renewable Energy Zones, expedited transmission construction, and Public Utility Commission rulemaking. These measures were developed with strong industry, civil society, and expert group input. Last summer, the state grid credited the wind industry for helping avoid blackouts during the recordbreaking heat wave and drought, with wind generating far more electricity than expected, and unlike coal and other forms of generation that depend on cooling towers, wind power does not need access to water to run. It is expected Texas’s wind power capacity will be up to 12,000 MW by 2014.

INTERNATIONAL EFFORTS
A new global program launched by UN Secretary-General Ban Ki-moon is setting an innovative course in addressing our energy challenges. “Sustainable Energy for All” has three goals by 2030:
πππTo ensure universal energy access πππTo double the share of renewable energy in the global energy mix πππTo double the rate of improvement of energy efficiency

Each of these goals will benefit global business, enabling development, reducing the security and environmental impacts of our energy systems, and increasing the competitiveness of businesses and economies. In addition, each is a business opportunity in its own right. In September 2011, the UN General Assembly agreed 2012 would be the International Year of Sustainable Energy for All, endorsing these objectives. Since then, the Secretary-General’s High-level Group on Sustainable Energy for All — including representatives of the UN Industrial Development Organization,

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the UN Development Programme, and the UN Environment Programme; corporations, including Siemens, Statoil, and Bloomberg New Energy Finance; civil society organizations, including the International Union for Conservation of Nature; and governments, including the US Secretary of Energy and the Brazilian Minister of Energy and Mines — have not only been developing their own programs and investments to help deliver on the Secretary-General’s objectives, but they have been working collaboratively among themselves to break through major barriers to progress. Governments, civil society, and the private sector are all at the same table, discussing challenges and identifying measures they can take individually and collectively to get past them. At Rio+20, specific public, private, and civil society commitments, which include both individual actions and collaborative initiatives, will be announced. Future public events are planned to build on the momentum created at Rio+20 so as to support continued progress toward UN goals.

COLLABORATING FOR A BETTER FUTURE
The approaches used in the past are not able to make the changes needed at the scale and speed required to solve our global challenges; we need new models of collaboration among businesses and between business and government as well as with civil society organizations. Together, businesses and governments can design superior policy and regulatory frameworks to accelerate deployment of sustainable technologies and practices. One challenge is asymmetric power, resources, and access to information. Developing nations often (rightfully) mistrust private players, some of which have pursued their priorities at the expense of developing nations. In the case of Sustainable Energy for All, the UN is serving as a neutral convener of the private sector, governments, and civil society to enable collaborative policy and regulatory design and a joint work plan to help deliver on the initiative’s goals, which serve the interests of all at the table. This new model is one to watch for its potential to be replicated as we continue to take on global challenges beyond energy. Clear, predictable energy policies not only benefit businesses, but also serve national and international interests. As energy availability and policy are critically important to the health, wealth, and security of all, it is time for business and governments to work together to create the policies that build a better future.

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Sponsor’s Perspective

This is a very special year for us at CPFL Energia: we are commemorating 100 years of activities in the Brazilian electric energy market. Something we have learned as a century-old company is that changes are inherent to our daily routine. And it is our capacity to anticipate and adapt to them that guarantees our longevity. And right now, change has never been so important. We have reached the natural limits of the planet and need to urgently address the impact that our activities have caused. In this sense, growth is not enough. We need to grow responsibly to achieve development for the billions of people who still have no access to essential goods such as water, food, and energy, guaranteeing their fundamental rights and
Wilson Ferreira, Jr. President CPFL Energia

their individual liberties. To deal with these enormous challenges, and at the same time take full advantage of the opportunities of the New Economy, we need to understand the complexity of the issues we are experiencing. Complexity can bring with it uncertainty in deci-

sion making, requiring a dialogue among companies, government, and society in the search for balanced solutions. In this context, we are all mutually responsible not only for sharing responsibilities but also for acting on a coordinated basis to ensure the benefit of society as a whole. At first sight, in the market in which we operate — the Brazilian electricity sector — it would seem that we are well within the safety zone. The country generates 73% of its electricity from hydro, such that 83% of the electricity matrix is renewable. However, the major challenge for us is to satisfy a surging demand for electricity, demand that is expected to increase 43% by 2020, driven by the dynamism of the economy and by a population that has risen out of poverty and is eager for essential consumer goods. To meet the realities of this situation, the Brazilian government’s strategy provides for the continued predominance of hydroelectricity, a clean, renewable, and secure source for which we have the technological know-how and a well-structured supply chain. In addition to the challenge of guaranteeing energy security, there is also the fact that 63% of Brazilian hydroelectric potential is in the Amazon region, a mega-diverse biome of incalculable value to humanity. Thus we must guarantee that new projects are viable from an economic, social, and environmental point of view and serve to develop and stimulate their local communities. Toward this end, we need to improve the energy planning, concession, and licensing system, incorporating systemic cost-benefit analysis so as to avoid potentially negative externalities at the point of origin.

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A Harvard Business Review Analytic Services Report

As an energy company, we understand that we have a central role to play in the search for sustainable development. We recognize that responding to complex challenges requires multiple measures. There is no silver bullet. The world needs to increase the efficiency of its energy production and invest in an energy mix in which clean and renewable sources such as hydraulic, wind, biomass, and solar are predominant. We are already doing this, and we know it is feasible. For us at CPFL Energia, it is a pleasure to support this Harvard Business Review Analytic Services white paper. We do not have all the answers, but we do believe that through dialogue and through increasing knowledge and awareness, we can build the world that we all desire and need.

Wilson Ferreira, Jr. President CPFL Energia

ABOUT CPFL

The CPFL Energia Group is one of the principal players in the Brazilian electricity sector. In 2011, CPFL Energia’s installed capacity was 2,644 MW, generating gross revenue of R$18,866 million. In the same year, CPFL Renováveis was constituted to focus on renewable energy projects. For more information on the company and its sustainability strategy, visit www.cpfl.com.br.

www.cpfl.com.br

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