Many of the world’s biggest companies are committed to sustainable energy. In 2019, Google signed a historic $2 billion clean energy deal which consisted of 18 separate agreements to supply the internet search giant with electricity from wind and solar projects across the world.
According to Google the agreement will see the company’s green energy portfolio grow by 40%, giving it access to an extra 1.6 gigawatt of clean electricity – the equivalent capacity of a million solar rooftops. The Guardian states that Google has become the most significant corporate buyer of renewable electricity by matching the enormous energy demand of its global operations and data centres with the power generated by renewable energy projects.
In 2017, Google became the first company of its size to match 100% of its electricity use with renewable energy sources after buying more than 7bn kilowatt-hours of electricity. It repeated this achievement in 2018 and 2019. CEO Sundar Pichai said the latest package of deals would “spur the construction of more than $2bn in new energy infrastructure”, including millions of solar panels and hundreds of wind turbines across three continents.
“We’re not buying power from existing wind and solar farms, but instead are making long-term purchase commitments that result in the development of new projects.”
“Bringing incremental renewable energy to the grids where we consume energy is a critical component of pursuing 24×7 carbon-free energy for all of our operations.”
A 2018 survey of 450 senior executives found that one third of the businesses they lead were generating their own green energy. The sectors ranged from manufacturing, retail, transport, and hospitality. The most popular form of green energy generation was solar power.
Alphabet Inc, the parent company of Google and several of its subsidiaries, is valued at over a trillion dollars. It has the consumer power, capital, and infrastructure to not only generate its own green energy but to enter into multi-million dollar deals with suppliers.
Smaller organisations have historically been forced to generate on-site renewable energy if they want to promote and engage in the environmentally friendly practise of relying in part on green energy. However, this comes with complications that can often only be managed by large companies. On-site solutions also rely on the ability of an organisation to have room for infrastructure and machinery. However, SMEs can now enter into Power Purchase Agreements (PPA) which allows them to purchase green energy directly from suppliers.
What is a PPA?
A PPA is a contract between a producer and purchaser of energy. The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, delivery of electricity, pricing, penalties for under delivery, payment terms, and termination.
PPA contracts are long term commitments – usually between 10 and 20 years.
There are four types of PPA, each providing a fixed amount of electricity. The difference between them is how the energy is supplied.
An on-site PPA involves the supplier providing energy directly to the consumer. For this to happen, the consumer needs to be near a physical plant. The generation plant is either located behind the metering point of the consumer or at the same location. The amount of energy consumed will determine the specific installation and also the parameters of the PPA.
Any residual electricity can be supplied to the public grid for profit.
For organisations that do not wish to take on the procurement and operational costs of installing their own renewable energy generation system, they can lease the plant from a provider who will construct the facility and sell the power back to the company.
Choosing to enter into an off-site PPA means the plant is not on the company’s premises; rather, the renewable energy is supplied directly from the supplier to the consumer via the public grid. The advantage of an off-site PPA, aside from not having a plant on or near a business site, is that the consumer and producer agree a set price for a specified period, which in turn shields the consumer from changes in energy prices.
A sleeved PPA is an off-site PPA in which an energy service provider takes on various processes and acts as an intermediary between producer and consumer. The utility provider takes energy directly from a renewable energy project and ‘sleeves’ it to the consumer. The utility provider will also top up the consumer’s energy needs if they are not met through the agreed amount in the PPA.
With a virtual PPA, the producer and consumer negotiate a price per kilowatt-hour of electricity. The electricity is not supplied directly from the energy generating plant to the consumer; instead, the producer’s electricity company takes the produced electricity into its balancing group and sells it to the PPA contracting party at a fixed price.
Virtual PPAs are fast-growing as they allow smaller companies who use less energy and have limited specialism in energy management to meet their renewable energy objectives and mitigate their risk concerning fluctuating energy prices.
Are PPAs the future of renewable energy?
PPAs have been common in America for some time. However, in Europe, where differing regulations surround each countries’ energy markets has only recently started to embrace them. This followed a recent boost in Investor confidence in renewable energy thanks to cheaper wind energy and several zero-subsidy bids.
Swagath Navin Manohar, senior research analyst – energy and environment, at Frost & Sullivan told Power Technology:
“The wind market is currently driven by the increasing competitiveness of wind power pricing,”
“Motivated by this, the global energy market is witnessing a shift from standard electricity model, where the major utilities decide the generation source and technology for consumers.
“Independent power producers (IPPs) like DONG are finding PPAs to be a promising option to supply power to large companies, rather than relying on subsidies.
PPAs allow companies to obtain the best price for their energy, reduce exposure to changing market conditions, and boost their reputation in sustainability.
Mr Manohar explained in his comments to Power Technology:
“Prices for electricity produced from wind energy are subject to market variability. IPPs may, therefore, have to sell the electricity in the market at negative prices and curtail MWs of wind power to balance the load, creating unfavourable financial conditions for IPPs and their investors.”
“PPAs protect IPPs from these financial fluctuations and maintain a steady stream of revenue where the prices are fixed. In addition, during times of surplus production, the IPPs can still trade the extra electricity produced in the market and earn additional revenue.”
“Also, as one of the fastest ways for corporates to reach sustainability goals and add new renewable energy to the grid in a cost-effective way, PPAs indirectly add brand value. This enhances their image and brand as forward-thinking environmental stewards focused on their customers’ interests.”
There are positive signs that the European market is moving towards PPAs. Not only do these agreements provide for investor confidence in renewable energy suppliers, but they also encourage businesses to embrace green energy in a way that saves them money. Whilst the long-term contractual commitment may initially concern some potential consumers, the ability to control energy expenditure is likely to negate any fears, especially as we head towards an increasingly uncertain economic future.
Although closer cooperation and better coordination between transmission system operators is a focus of the new Electricity Regulation EU/2019/943