Our CEO Lei Zhang Speaks with Fortune – Carbon Offsets are the Last Resort for Envision as it Targets Net Zero

Lei Zhang Fortune Interview

The race to achieve net-zero carbon emissions is redefining the world’s energy make-up.

According to McKinsey, electricity demand will account for 30% of global energy needs by 2050—up from 19% today. Meanwhile the International Energy Agency (IEA) expects renewables to generate 80% of global electricity demand within the next decade, as the cost of renewable generation plummets below the cost of fossil fuels.

That surging demand for clean electricity could be a boon for companies like Shanghai-based Envision Group, which manufactures wind turbines, industrial batteries and energy management software. But, so long as fossil fuels remain plentiful and cheap, convincing developing economies to invest in renewable energy remains a challenge.

Fortune sat down with Envision founder and CEO Lei Zhang to discuss how the green-energy group convinces new clients to join the renewable energy transition early.

The Q&A has been edited for length and clarity.

Fortune: Most critics—and even some proponents of renewable energy—say that wind power is too intermittent to provide the minimum baseload power grids require to operate. What future do you think wind turbines have in renewable energy systems?

Lei Zhang: I believe wind energy is going to be a mainstream source of energy. Every time an energy source becomes mainstream—like coal, oil, nuclear—the economics of it has always been the most important factor driving its adoption. And if you look at the wind energy costs, they keep declining every year—around 10 to 15%. Last year, the wind turbine price in China dropped almost 40%. So, the economic advantage of wind energy is very powerful.

But we need to make our energy demand flexible and responsive to energy supply. Today, technology for forecasting wind patterns can reach 98% accuracy for daily predictions and almost 80% accuracy for a week. So, we can build flexibility into the grid, through storage or introducing base layers like hydrogen, to smooth intermittency.

It’s costly and complicated for economies that are built on fossil fuel systems to deploy renewable energy grids. How do you convince them to make the investment?

In the future, the renewable energy system is going to require a very holistic approach. You need advanced hardware knowledge; you need advanced software knowledge; and you need to be supported by an advanced market mechanism that can facilitate the real-time dispatch of electricity.

Envision is trying to provide all of that. We don’t just do wind turbines. We provide batteries, energy storage, hydrogen power and an AI-driven monitoring system to harmonize operations, called Envision Ark. It measures a company’s carbon emissions across scope one and scope two [that’s emissions in the company’s own operations and power purchases] and analyzes patterns to maximize energy efficiency.

Envision aims to be carbon neutral in its own operations by 2022. How are you going to do that?

Ark is the first step. For the rest of our emissions, we use our own technology to develop distributed wind and solar farms around our factories to create a green mini-grid. Then, for the remainder of carbon emissions, we can use green energy created by our other operations to create offsets.

But I think carbon offsets should be the last resort for reducing carbon emissions.

Envision has also pledged to be carbon neutral across its whole value chain—that’s scope 3 emissions—by 2028. How can you convince your manufactures to decarbonize as well?

In China, currently, Envision is building net zero industrial parks in areas that—due to exposure to wind and sun—were previously underdeveloped. But now, we’ve realized these areas are rich in renewable energy resources.

So, we tell our partners that the cost of reducing carbon emissions will mount over the next few years and that it won’t be competitive for them to remain in the same [fossil fuel-powered] industrial parks they are in now. We say it’s better to come with us, to our new net zero industrial parks, where you can immediately enjoy the cheap energy costs now and, in the long run, avoid these carbon risks.

That sounds like a hard sell. There will be a lot of added costs for companies to leave their current locations and move to new parks, further away from their current ecosystem of suppliers, customers and infrastructure.

The energy transition is not easy. It needs lots of hard work. But we strongly believe that these relatively under-developed regions have the most precious resource, which is renewable energy. And if we want to achieve net-zero we have to go with our partners, and we will help them transition, no matter how tough it is.