Powering climate action
Corporate climate action needs to be scaled to unprecedented levels if we are to limit global warming to 1.5°C and reach Net Zero by 2050.
One of the many ways companies can contribute to global decarbonisation efforts and reduce their emissions is to accelerate the world’s transition to renewable energy.
Companies igniting the spark of decarbonisation
Given its reliance on fossil fuels, the energy sector accounts for over 75% of the world’s greenhouse gas emissions. It will be impossible to reach Net Zero by 2050 without radical changes in the energy sector. Companies can play a role in accelerating these changes towards renewable energy.
Given their purchasing power, corporations can send strong market signals of a need for more renewable energy production. In its 2022 financial year, Microsoft consumed over 18 million MWh of electricity, which is equivalent to Iceland’s annual consumption.
More widely, companies in the commercial and industrial sectors source around half of the world’s electricity. Through their combined consumption, their energy procurement decisions can influence the future of the energy sector and shape its decarbonisation potential.
Initiatives such as RE100 are on a mission to support the world’s largest electricity consumers and guide them on their journey to consume 100% of their electricity from renewable sources. Their members include the world’s largest companies, such as Apple, Unilever and Google.
One of the ways these corporations can reduce the emissions associated with their energy consumption is to engage in Power Purchase Agreements with developers of renewable energy assets.
Diving into Power Purchase Agreements
Power Purchase Agreements (PPAs) are long-term contracts between consumers of renewable energy and those developing renewable energy-producing assets. Ranging between 5 and 20 years, these contracts play a key role in the transition to renewable energy.
In 2022 alone, companies purchased 36.7 GW of renewable electricity through PPAs. That’s a 464% increase since 2017, when the renewable energy capacity contracted out was 6.5 GW. Different types of PPAs are available to companies, including:
On-site PPAs: A developer of renewable energy equipment, such as wind turbines or solar panels, will design, install and operate the assets within the facilities of the buyer. In this instance, there is no need to be connected to public grids.
Off-site PPAs: Purchasers of renewable energy will contract an energy supplier to provide them with renewable energy from a specific physical asset. Delivered by a public grid, it allows for energy to be produced in sites where wind and solar conditions might be most optimal.
Another feature of PPAs is that a specific amount of energy, supplied at a predetermined price, is negotiated between the buyer and the seller. This stability makes them attractive to large corporate buyers such as Google.
The Google and Ørsted case study
Ørsted is a Danish renewable energy company known for being named the world’s most sustainable energy developer. They build and operate offshore and onshore wind farms, solar plants and energy storage facilities.
In 2021, Google signed a 12-year PPA with Ørsted for the supply of 50 MW of electricity produced by an Ørsted wind farm in the German North Sea. Construction of the wind farm started at the end of 2023, and they are planning for it to be operational by 2025.
Through such a contract, a company like Google can finance the development of one of the largest wind farms in Germany. This clearly highlights the potential of PPAs to decarbonise national grids and reduce a company’s emissions.
For Google, these PPAs contribute to its decarbonisation targets, such as achieving 24/7 carbon-free energy by 2030. The global reach of such a company means that if they successfully meet their goals, they have the potential to transform energy systems and decarbonise grids all throughout the world .
Companies like Google can invest in multiple PPAs to secure their sourcing of renewable energy. Just a few days ago, Google announced new European PPAs totalling over 700 MW of renewable energy through solar and wind assets.
The power of PPAs
With a decline and removal of government subsidies for renewable energy projects, PPAs have filled a market gap to finance the deployment of renewable energy assets. They also come with a host of benefits for both consumers and producers.
For consumers, PPAs provide reliable and certified access to renewable energy, which is contracted at a fixed rate. Companies are less exposed to fluctuations in energy prices, can reduce their emissions and trace their supply of electricity to specific assets.
For developers, PPAs provide revenue certainty due to the nature of the contracts and reduce the risks of high upfront investments in physical assets. They also foster the development of long-term relationships with corporate partners.
There are some inconveniences to PPAs, such as their complex structure which can delay the deployment of projects. Additionally, due to the prices being fixed, producers and consumers can lose out on opportunities to charge higher prices or purchase cheaper energy from the market.
PPAs provide an opportunity to accelerate the renewable energy transition and enable consumers and producers to market their contributions to changes brought in the energy system as they create waves of climate action.
