This is a feature from Windpower Monthly's October 2021 issue. Click here to read the full edition
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Companies looking to decarbonise their operations and improve green credentials have helped to give a push to the rollout of new wind and solar capacity by sealing power purchase agreements (PPAs) for green energy. Corporate buyers acquired a record 25GW of wind, solar photovoltaic (PV) and other renewable energy via PPAs in 2020, data from BloombergNEF (BNEF) shows. That figure should be easily surpassed in 2021, with 21GW in green energy PPAs already announced in the year to August.
The number of businesses signalling their interest in buying clean power is growing. The RE100 group of companies, which is committed to sourcing 100% of their electricity from renewable energy, has more than doubled its membership over the past few years, from 155 in January 2019 to more than 330 in September 2021.
Just as sustainability is moving up the corporate agenda, the competitiveness of wind and solar has been boosted by cost declines and technological improvements, making renewable PPAs more attractive for companies. As a result, these offtake agreements have become the main mechanism to guaranteeing a stable revenue stream for a project in some markets, such as those for wind energy in Sweden and Finland. Rising gas prices this year are further helping to highlight the business case for renewables versus the riskiness of relying on fossil fuels.
“The PPA business is booming,” says Domenico Franceschino, head of origination for western and eastern Europe at Swiss energy trader Axpo. He points to the “big political push” to accelerate the energy transition, and the fact that incentive mechanisms for renewables increasingly involve market exposure for producers.
“In many countries there is not even a subsidy scheme or not enough volumes under the subsidy scheme to reach targets,” he notes. “PPAs can help ensure the long-term fixed prices that are fundamental to financing.” Both PPAs and support systems are key if ambitious emissions reductions targets are to be reached, Franceschino believes.
Pressure from consumers is also pushing companies to buy renewable energy, he adds. “Ten years ago, if you went to an industrialist and asked if they wanted to buy green power, the answer would be ‘No, I just want the cheapest price’,” says Franceschino. “Now consumers are shouting that they want products that are green.”
It is not surprising then that consumer-facing companies — including tech giants such as Google, Facebook, Microsoft and Amazon, which are looking to decarbonise data centres — have been at the forefront in securing PPAs for renewable energy. Increasingly, however, a diversified range of corporations are getting into the game, from consumer goods groups to retailers, telecommunications firms, chemical producers and car manufacturers.
Recent deals include Google signing a 12-year corporate PPA with Ørsted for a 50MW portion of the900MW Borkum Riffgrund 3 Borkum Riffgrund 3 (900MW) Offshorenorth-west of Borkum, Germany, Europe Click to see full details project in the German North Sea, while Amazon has expanded its December 2020 offtake agreement for the same project by 100MW to 350MW.
More and more, car makers are striking up PPAs to provide renewable energy for their factories, which are ramping up production of electric vehicles. An example of this is the deal announced in April between Daimler, Luxembourg-based energy company Enovos and Norwegian utility Statkraft to use wind energy from 24 German wind farms that no longer receive financial support, as well as solar capacity that was incentive-free from the start, to power Mercedes plants, with hydroelectric capacity in Norway providing a back-up. The deal builds on a PPA the three parties signed in 2018 to supply Mercedes plants in Germany with wind power.
American car maker General Motors (GM), which plans to become carbon neutral in its products and worldwide operations by 2040, is the largest buyer of PPAs in the automotive sector globally and the leading player in manufacturing in the US. Its first renewable offtake agreement for wind power dates back to 2015, when it signed a 34MW PPA sourcing power from an Enel Green Power wind farm in Palo Alto, Mexico.
While electrification of transport is one key element in decarbonisation plans, and lifetime emissions are lower for electric vehicles (EVs) than for cars powered by fossil fuels, greenhouse-gas emissions from producing EVs are typically higher than for conventional, internal-combustion engine vehicles. This is largely a result of the energy intensiveness of battery cell production, the European Environment Agency noted in a 2018 report.
In an effort to make batteries more sustainable, Belgian materials technology firm Umicore in July secured a PPA with Engie to provide wind energy for a new plant in Poland that will produce cathode materials, a key component of rechargeable lithium-ion batteries used in EVs. Engie is supplying the facility with electricity from its 50MW Pągów wind farm, commissioned in 2012 and situated about 80km away from the Umicore plant. Other PPA deals to make battery production greener are likely.
According to the International Energy Agency (IEA), electricity demand to serve EVs is forecast to reach about 640TWh in 2030, more than ten times the 58TWh needed in 2018. Since electric cars are only as green as the grid that powers them, charging infrastructure providers would also seem to be a natural candidate for PPAs.
American electric vehicle charging infrastructure group Amply Power announced in May it was teaming up with Duke Energy Sustainable Services to offer what it claims is the first commercially available combination solar canopy and overhead electric-vehicle charging solution covered by a PPA leasing and finance model.
EV charging tariffs are springing up in Europe to encourage consumers to use power when wind and solar are plentiful and power is cheap. In some cases, these tariffs are backed by PPAs.
In the UK, for example, Good Energy offers EV drivers free electricity with a “flash” tariff during periods when the generation of renewables is abundant. The days the flash power sale is offered vary, but the time of day remains steady, at 11am to 3pm from April to September and 11pm to 3am from October to March. Good Energy sources 100% of its electricity from renewables, via PPAs and its own wind and solar assets.
Oil majors snap up green PPAs
Oil majors looking to decarbonise have also started investing in renewable energy PPAs. With 3GW in solar PV contracts, TotalEnergies was the second largest corporate buyer of renewable energy last year behind Amazon, which signed agreements for 2GW of wind power and 3.1GW in solar PV.
In July, TotalEnergies signed a PPA agreement to supply Air Liquide with 50GWh a year of power for 15 years. Total buys the renewable energy from the 309MW Rentel Rentel (309MW) Offshoreoff Zeebrugge, Belgium, Europe Click to see full details offshore wind farm in the Belgian North Sea, owned and operated by Otary. Earlier in the year, the French oil major struck up PPAs with companies including Merck, Microsoft, and Orange. That same month, it also signed a 474MW PPA to provide electricity from renewable energy plants in the US and Europe to Amazon.
Even ExxonMobil, often seen as dragging its feet in the energy transition, has ventured into the market. In 2018, the firm sealed two PPAs with Ørsted to supply 250MW from the Danish developer’s 338MW Sage Draw Wind Sage Draw Wind (338MW) OnshoreGarza and Lynn Counties, Texas, USA, North America Click to see full details wind farm and 250MW from the 350MW Permian solar PV complex in Texas to power operations at a Texan oil field.
Larger companies are increasingly looking to cut scope 3 emissions — defined as indirect emissions associated with the activities of a business — from the supply chain, especially when they represent a high proportion of total emissions.
The efforts of Apple, which through its clean energy supplier programme has enlisted more than 100 manufacturers in its supply chain to commit to 100% renewable targets, are probably the most visible.
Apple has pledged to become carbon neutral by 2030 across its whole supply chain, which represents more than 70% of its carbon footprint. To help achieve this goal, the tech giant has created an investment fund to co-invest in renewable energy with its suppliers and has also organised aggregate PPAs.
Taiwan-based semiconductor group TSMC, a key supplier to Apple, put its name behind what currently ranks as the world’s largest renewable energy PPA. According to the 20-year agreement sealed last year, Ørsted will supply 920MW of offshore wind power from two projects in its Greater Changhua cluster in Taiwan, which are expected to be grid-connected in late 2025.
Semiconductor group TSMC signed a 920MW wind deal with Ørsted
Smaller companies along the supply chain may not have the leverage or expertise to negotiate individual PPAs. For offshore wind projects, the power provided may be excessive for many corporations and divided up among different buyers.
“There are certainly a lot of challenges, the more counterparties you add” to an aggregated PPA, notes John Hensley, vice-president for industry data and analysis at industry association American Clean Power (ACP). “But I think it will be one of the key mechanisms to enable the next level of demand from the C&I (commercial & industrial) purchasers.”
As companies such as Microsoft and Google turn their attention past sourcing 100% renewable energy to matching consumption with renewable power generation 24 hours a day, seven days a week, PPA structures are also beginning to evolve.
Daimler’s PPA with Statkraft is designed to allow Mercedes factories to be powered by renewable energy all of the time, a model that is being replicated in other deals. Through an agreement with Vattenfall, Microsoft’s data centres in Sweden have also begun receiving 24/7 power from wind and hydropower.
The state-controlled Solar Energy Corporation of India (SECI) in August signed a “round-the-clock” (RTC) PPA with independent Indian renewable energy player ReNew Power. The project will be designed to operate at an average 80% annual plant load factor and have a minimum monthly capacity utilisation factor of 70%. ReNew has said the 400MW RTC project should require 900MW of wind capacity and 400MW of solar, which will be supplemented by battery storage.
With demand for firm, or guaranteed, power on the rise, hybrid PPAs, including those featuring batteries or green hydrogen as a storage source, are seen growing in importance.
The rise of corporate buyers has led to some changes in the market for PPAs, which have shortened from the 15- to 25-year tenures typical in utility PPAs. “Utilities are much more comfortable taking on longer-term risks and have expertise to deal with them,” explains Kyle Harrison, a senior associate at BNEF. With corporations that have not gained in-house energy expertise, PPAs of 10-12 years, or even five, are more likely.
Harrison notes that corporate buyers also tend to be keen on risk mitigation, enlisting insurers to cover weather risks for wind and solar projects and putting in place tools such as power price ceilings and floors.
New markets on the rise
The US is the market where corporate renewable PPAs started, and it continues to be the most important for green energy offtake agreements. Data from the American Clean Power Association (ACP) showed 7.7GW of corporate PPAs were agreed in the first half of 2021, compared with 10.4GW of PPAs and clean power contracts for the whole of 2020.
Corporate buyers in the US are intent on sourcing power from new renewable assets. “C&Is [in the US] don’t see it as good enough to buy power from existing projects,” explains Hensley. “They want to drive additionality and know that there is a new renewable project with new, incremental production.”
According to BNEF data, more than 7GW of corporate PPAs were announced in 2020 in Europe, the Middle East and Africa (EMEA), with a further 6.5GW seen in the first eight months of 2021.
Within Europe, Finland has scrapped its support mechanism given the competitiveness of wind PPAs. Poland is an important emerging market for PPAs and Spain is also taking off.
EDPR in September agreed a 15-year PPA with US consumer goods group Procter & Gamble (P&G) to deliver it 127.5MW of new green capacity from its 100MW Penaflor solar farm and the 47.5MW Sierra de la Venta - Albacete Sierra de la Venta - Albacete (47.5MW) OnshoreCastile-La Mancha, Spain, Europe Click to see full details wind farm, both expected to come online in 2023. EDPR will supply P&G with 27.5MW from the wind farm under the contract, with the remaining 20MW covered by a PPA from an undisclosed buyer.
While PPAs are being sealed for scores of new-build projects — particularly for offshore wind — one notable trend in Europe is the use of PPAs to provide a stable source of revenues for onshore wind farms that are exiting incentive systems but have not yet reached the end of their operational lifetime. A number of deals of this sort are sprouting up in Germany, where from 1 January 2021, 4GW of German onshore wind capacity became ineligible for support under the EEG renewable law, and around 16GW of capacity is due to exit the support scheme by 2025.
In Latin America, one big source of demand has come from mining companies, which are not only looking to improve their sustainability credentials but also for a reliable supply of power. As a result, Harrison notes that deals are frequent with utilities present in the region, such as Enel and Engie, which can also handle balancing, physical power delivery and other services.
“There’s definitely a lot of excitement over what could happen in Asia, but activity is still slow there,” says Harrison. One country to keep an eye on is Japan, which boasts the second largest membership in RE100 and where there is a drive to be sustainable, amid upstream pressure from corporate customers in the US and Europe.
Globally, the capacity covered by corporate PPAs grew by about 25% in 2020, and that was in the year of the Covid-19 pandemic. “It’s very easy to see the market continuing to grow at the current rate for the next 20 or 30 years,” says Harrison, highlighting the expanding number of companies joining initiatives like RE100, growing energy demand from a number of companies that have already reached renewable goals and the opening of new markets for PPAs in places like Taiwan, South Korea, and Japan.
PPAs represent an increasingly popular way of using green power but are not the only alternative. Other options include generating and using renewable electricity from their own facilities and purchasing power from suppliers and utilities as a retail product. Some companies may also choose to simply purchase guarantees of origin (GOs) or other energy attribute certificates (EAC) separately from the underlying power, although that is seen as a less effective mechanism to push decarbonisation.
“I don’t think that the corporate PPA is going to be the only potential source of revenue for a clean-energy developer, now or never, but I think that fairly soon there will be an embarrassment of eventual offtakers,” states Harrison.
Not just corporate buyers
Universities, public sector bodies and cities are increasingly turning to PPAs as they also look to decarbonise and set net-zero targets.
Aspen, in Colorado, became the third city in the US to claim 100% renewable power back in 2015, with the signing of a PPA with the Municipal Energy Agency of Nebraska to source electricity from wind farms in Nebraska and South Dakota to complement local hydroelectric and solar resources,
The US defence department has been sourcing electricity from wind, solar and other renewable energy through PPAs since 2013, following a requirement in the National Defense Authorization Act of 2010 that military bases produce or procure 25% of total energy needs from renewable sources by fiscal year 2025.
Sydney, Australia’s largest city, in 2020 signed a PPA to purchase electricity from two solar farms and the 270MW Sapphire (Australia) Sapphire (Australia) (270MW) OnshoreInverell, New South Wales, Australia, Asia-Pacific Click to see full details wind farm, which will provide the lion’s share of its electricity. The city said it is buying more wind than solar power to match up power generation with its demand, given that most of its electricity needs are during the night, when it needs power for 23,000 streetlights. Sydney expects the PPA will help it to reach a target to cut carbon emissions by 70% compared with 2006 levels by 2024 — six years earlier than planned.
London, which aims to become a zero-carbon city by 2030, earlier this year detailed plans for Transport for London — its biggest energy consumer with an electricity requirement of 1.6TWh a year — to enter its first renewable PPA, covering up to 10% of annual electricity use. That is to be followed by another PPA covering a further 10% and specifically aiming to secure generation from new-build renewable assets.