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150 GW later: The dizzying rise of the power purchase agreement

Two recent analyses underscore how the global PPA market has surged over the past decade, as businesses have increasingly sidestepped wholesale markets to tap low-cost clean energy.

Power purchase agreements, with each word displayed with a corresponding icon

Image via Shutterstock/kozhedub_nc

Two recent reports have highlighted how the appetite for clean energy power purchase agreements (PPAs) among corporates is continuing to grow, despite supply chain bottlenecks and high interest rates triggered by the gas crisis.  

The first analysis, BloombergNEF's latest biannual report on clean energy procurement, highlights how public institution and corporate procurement of clean energy was up 18 percent in 2022 from 2021 levels, reaching a record 36.7 GW.

While this was largely driven by activity in the American and Asian Pacific markets that have been less affected by the global energy crisis, the analysis predicted that activity within the Europe, Middle East and Africa region will remain resilient in the face of economic headwinds and rebound in 2023.

PPAs and virtual PPAs (vPPAs) provide corporates and other organizations with long-term price certainty over the duration of a deal, which typically cover a five-to-15-year period, as well as enormous emissions savings in support of their climate goals. Moreover, despite growing demand for such contracts, solar and wind energy PPAs can offer significant savings to businesses compared with the wholesale market, where electricity prices have been pushed up by the price of gas.

The commercial case for such deals has been underscored in the year since Russia's invasion of Ukraine sent prices soaring in wholesale electricity markets, squeezing business revenues around the world. By BNEF's count, 167 organizations, including household names such as Amazon, Ford and McDonald's, announced clean energy procurement deals in 36 countries worldwide in 2022, helping to bring the total amount of clean energy procured through corporate PPAs since 2008 to a whopping 148 GW.

Kyle Harrison, head of sustainability research at BloombergNEF, said corporate clean energy buying had been "an unwavering constant" over the years against the backdrop of a less predictable environmental, social and governance (ESG) investment market. "Companies can access clean energy at scale in most major countries, the economics make sense, and amid turbulent energy markets, PPAs have become useful risk-mitigation tools for chief financial officers," he said.

Technology companies were the top corporate purchasers of clean energy, according to Bloomberg's analysis, with Amazon leading the pack after adding a staggering 10.9 GW of clean energy to its portfolio. Meta, Google and Microsoft were the next most prolific sourcers of clean energy deals, signing 2.6 GW, 1.6 GW, and 1.3 GW of PPAs respectively.

BNEF's analysis notes that the growing popularity of clean energy goals should drive a rapid acceleration in corporate clean energy buying, noting that the 397-strong group of companies that form the RE100 initiative will have to secure 290TWh of clean energy — more than they have to date — if they are to meet their goals to source 100 percent renewable power by the end of the decade. RE100, which brings together companies that have pledged to achieving 100 percent clean energy by 2030, added 56 new companies to its roster in 2022. In its own recent update, the campaign confirmed that its members were set to source clean power equivalent to the U.K.'s entire annual electricity demand.

"We're seeing an evolution in the corporate energy buyer, with companies moving to hourly carbon-free energy goals and others signing clean energy contracts for reliability purposes," said Harrison. "Developers that can provide firming and balancing services have access to a wellspring of corporate clean energy demand and are poised to be the biggest winners in this market."

However, while global demand for PPAs by corporates and public institutions remains on the rise, the report notes that activity dipped in Europe, the Middle East and Africa, the market most affected by soaring gas prices and the energy supply crunch triggered by Russia's weaponization of gas supplies.

While PPA activity increased in the Americas by 18 percent to reach a record 24.1 GW and more than doubled in the Asia Pacific region to reach 4.6 GW, led by a flurry of activity in India and Australia, PPA activity declined in Europe by 7 percent. BNEF said this was partly due to developers seeking bigger deals in Europe to reflect the increase in overall energy prices, and partly due to solar and wind developers favoring deals on the wholesale markets where high prices meant they could enjoyed better returns.

But BNEF said it expected PPA activity in Europe to rebound in 2023 in response to lower fossil gas prices and the European Commission's proposed power market reforms.

The impact of the energy crisis on corporate energy procurement in Europe was also explored this week in a separate analysis from Swiss consultancy Pexapark.

According to the report, contract volumes of PPA deals in Europe reached 8.4 GW in 2022, a 21 percent decrease from the 10.7 GW recorded in 2021. But it noted that corporate PPA activity had continued to rise, with the overall volume of deals growing by at least 20 percent in 2022, up to 7 GW from 5.8 GW in 2021. The number of deals signed by corporates also rose, with 129 deals successfully brokered by companies within Europe, up 29 percent from the number the year before.

"The maturity of the PPA market shone through amid the European energy crisis, and the resiliency it exhibited was remarkable to say the least," said Luca Pedretti, chief operating officer at Pexapark. "It's fair to say that certain corporate procurement departments deserve awards for saving their companies from spiralling energy costs." 

While technology firms continued to hold the top spot for contracted volumes of clean energy via PPAs in Europe — with 1.97 GW procured across 14 deals — the metals and mining sector came in an extremely close second place, with 1.95 GW procured across 19 deals, according to the findings.

Aluminum company Alcoa was found to be the largest single buyer in Europe and Spanish Independent Power Producer (IPP) Greenalia was the largest seller, thanks to its deals with Alcoa.

Overall, Pexapark stressed that Europe's PPA market had remained remarkably stable throughout 2022, thanks to corporate buyers' increased appetite for long-term deals that protect them from an increasingly volatile wholesale electricity market. And it predicted that 2023 would bring with it a popularization of shorter-term PPAs, the evolution of PPAs where project owners, utilities and corporates join forces, known as "tripartitie PPAs" and the "coming of age" of co-location and flexibility services within PPA deals.

The growth of the corporate PPA market over the last 15 years has been genuinely remarkable. Amazon boasts the seventh-largest power portfolio of any company in the world, including dedicated energy firms. And the corporate love affair with clean energy is only set to grow as the cost savings and price stability on offer becomes increasingly difficult for financial department to ignore, even before they consider the contribution such projects can make to increasingly ubiquitous corporate climate goals. The question now is whether governments, regulators and renewables developers can tear down the obstacles to development and keep pace with soaring demand for clean power from across the business community.

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