Together, Health Care Companies Can Unlock Renewable Power in Asia

Among the many industries looking to decarbonize their operations and meet their net-zero goals, pharmaceutical and medical technology companies have already made considerable headway. Many have succeeded in lowering their global Scope 2 emissions by making considerable use of the renewable power available in many of the regions where they operate—while reducing their long-term costs and improving business resilience in the process.

Unfortunately, sourcing renewable electricity in Asia can be far more challenging than it is in Europe or North America. In Europe and the US, many climate-conscious companies have already made the shift to renewable energy via long-term Power Purchase Agreements and Renewable Energy Certificates. In other parts of the world, however, the transition has been more difficult. Some markets in Asia, such as Singapore, face supply constraints driven by limited space for renewable energy developments, and limited imports, to date, from neighboring countries. Elsewhere, in China and Japan, for example, regulatory mechanisms and broader industrial demand for renewables create challenging procurement conditions for companies with lower demand for electricity .

For multinational pharmaceutical and medical technology companies, the need to decarbonize sites in Asia is especially pressing, as most of their manufacturing operations and upstream supply chains are based in China, India, and other parts of South and East Asia. If they are to make further progress toward achieving their Scope 2 and 3 targets, these companies must be able to access secure sources of affordable, reliable renewable energy—not just for themselves but also for their suppliers.

Industry collaborations have proven to be helpful in unlocking sources of renewable energy across Asian markets. Companies might typically expect to pay about 6% more for renewable energy in China if they are procuring power alone, or through the country’s Green Electricity Certificate system. But a collaboration spearheaded by members of the Sustainable Markets Initiative Health Systems Task Force has shown that joint sourcing can deliver an average 80% reduction in that premium.

The Renewable Advantage

Pharmaceutical and medical technology companies have largely maintained their ambitious net-zero commitments, and those headquartered in Europe, in particular, continue to face pressure from regulators and customers to keep reducing their carbon footprint. Early movers among these companies have near-term goals requiring the reduction of more than 50% of their Scope 1 and 2 emissions by 2030. Because the power they use is typically more than half of their direct emissions, reducing their Scope 2 emissions is the most effective way to meet their goals. And those with reduction targets for their Scope 3 emissions are likely to lean heavily on adoption of renewable electricity by their suppliers as an early reduction lever.

In many parts of the world, renewable electricity is a readily available, cost-effective lever for achieving emissions reduction targets. In Europe, for example, members of RE100, an NGO that encourages corporations to achieve net zero emissions in their use of electricity, have been able to procure 83% of their electricity from renewable sources, and their North American counterparts now procure 65% of theirs from renewables.

The same cannot be said for the availability of renewable energy in Asia. Just 33% of the energy used by RE100 members in Asia is renewable, far less than they have achieved in European and North American markets. Companies seeking renewables in the region often face regulatory and supply constraints, making it difficult to access cost-effective and sufficient supply.

Several factors are converging to constrain the renewable power industry in Asia. In some markets, the growth of renewable capacity is severely limited by space constraints, and many markets face the further challenge of regulatory complexity. Regulatory schemes vary considerably from country to country and are evolving rapidly. Further development of China’s renewables market, for example, would still require new regulation to enable trading across provincial boundaries, while India’s energy market is characterized by regulatory inconsistency at the state level. These factors have made it more difficult for companies to make headway in transitioning all their energy demand to green sources.

Working Together

Pharmaceutical and medical technology companies tend to have lower energy requirements and scale in the market compared to heavier industries, such as base chemicals or steel. This puts them at a disadvantage in accessing renewable energy projects directly when operating in a supply-constrained environment. Pooling demand can help create the scale needed to access more renewable energy capacity and, in some cases, can unlock opportunities that companies with a smaller demand footprint would be unlikely to qualify for alone. Case in point: some companies based in India are exploring what it would take to achieve scale via a group captive scheme, a structure that enables offtaker companies to make an equity investment into a renewable energy plant and benefit from energy cost savings of over 20% over 15+ years.

Powering Up

All pharmaceuticals and medical technology companies with operations in Asia can benefit from working together to procure more of their power needs from renewable sources. And the benefits extend beyond their specific energy needs to include the development of more renewable power across the continent.

Companies can take three steps to understand their carbon footprint and power needs—and boost their procurement of renewable power:

• Quantify exposure. Work to understand Scopes 1 and 2 emissions in addition to the Scope 3 emissions stemming from your suppliers. What portion is driven by electricity in Asia, and how do you expect this to change over the next five to fifteen years?
• Assess maturity of solutions. Determine how much renewable energy your company is currently procuring in Asia and the nature of the renewable energy contracts you’ve entered into. Are there opportunities to reduce costs or secure supply by partnering with others in your industry?
• Work with suppliers. Ensure that your suppliers are also engaged in the effort to boost their use of renewable energy. Are they also partnering to gain access to renewable supply at similar rates as your organization is securing? If not, are they making concrete plans to secure their own supply?

Conclusion

Despite the potential for cost reductions and operational efficiency inherent in the use of renewable power, pharmaceutical and medical technology companies have been struggling to source the renewable power they need for their operations in Asia. Complex market dynamics and competition for renewable energy supply available to corporates have hampered the ability of companies with less demand for power to procure it.

By banding together and aggregating demand for renewables, these companies can boost the amount of renewable power they use to satisfy their energy needs—while helping to promote the growth and availability of renewables in Asia. A win-win for all concerned.