Corporate clean energy power purchase agreements set new records in 2018

By State of Green, February 04, 2019

In 2018, corporations doubled their purchase of clean energy PPAs, buying what amounted to a total of 13.GW of clean energy. This is more than double the amount of 6.1GW in 2017.

As clean energy projects become cost competitive, many governments are reducing or removing their financial support schemes. As this assistance disappears, thoughts are turning to how to secure finance for the continued expansion of clean energy. Corporate Power Purchase Agreements (PPAs) are increasingly being relied on to meet this gap, where a PPA with a financially robust counterparty helps provide assurance for developers and finance institutions that the project is bankable.  For corporations, PPAs offer several benefits; it allows them to reduce their carbon footprint and secure a fixed per/kW energy price over a number of years. In addition, it demonstrates the organisation’s commitment to sustainability and can spur the global transition to clean energy, thereby fulfilling the Paris Agreement’s objective of limiting the rise in global average temperatures to less than 2 degrees Celsius above pre-industrial levels.

Corporations and clean energy generators: the new power couple in clean energy projects?
A new outlook published by Bloomberg New Energy Finance (BNEF) reveals the growing importance of corporations, who are rivalling utilities as the largest purchasers of clean energy on a global scale. In its 1H 2019 Corporate Energy Market Outlook that was published last week, it was found that 13.4 GW of clean energy contracts were signed by 121 corporations in 21 different markets in 2018. This result far surpasses the 6.1 GW of PPAs that were established in 2017.

Jonas Rooze, head of corporate sustainability for BNEF, said: “Corporations have signed contracts to purchase over 32GW of clean power since 2008, an amount comparable to the generation capacity of the Netherlands, with 86 per cent of this activity coming since 2015 and more than 40 per cent in 2018 alone.”

-Related solution: Green Power Purchase Agreements

The Nordic countries are leading the way for PPAs in Europe

Currently, the US is the largest market for corporate PPAs, home to approximately 60 percent of PPAs, with Europe, Middle East and Africa (EMEA) region in second place with 2.3GW – double the amount of 2017. Leading the charge is tech giant Facebook, which purchased over 2.8 GW globally in 2018. However, unexpected actors such as ExxonMobil are also participating, with the oil company purchasing 575MW of solar and wind energy in Texas from the American onshore division of the Danish wind energy developer, Ørsted.

While the US has deep experience with the use of PPAs, the model is rapidly gaining ground in Europe and the Asia-Pacific region. In Europe’s case, the bulk of activity is taking place in the Nordic countries, where strong wind resources and credit support from government agencies are helping drive activity in the region. Actors such as Facebook and Google are entering into PPAs to power their planned data centres in Denmark, as well as industrial conglomerates in Sweden and Norway, who were the largest purchasers of clean energy overall in Europe in 2018.

While Denmark has been slower to make use of corporate PPAs, their popularity is increasing. In 2018, the Danish healthcare giants Novo Nordisk and Novozymes entered into an agreement with Vattenfall to purchase one-fifth of the energy produced from the coming offshore wind farm, Kriegers Flak. Novo Nordisk has previously pioneered the use of corporate PPAs in Denmark, having invested in the Horns Rev 2 offshore wind farm in Denmark that began operating in 2009 – at the time the world’s largest offshore wind farm.

Wind energy responsible for more than half of all corporate PPAs in Europe

Wind energy’s share of corporate PPAs in Europe in 2018 amounted to 1.5GW, which is double the amount it was in 2017 and a little more than half of the total share of clean energy corporate PPAs in the region, which amounted to 2.8GW. Corporate PPAs for wind energy are becoming more popular in Portugal, Spain and Germany. In the latter, Mercedes Benz represents the first car manufacturer to enter into a PPA.

“This shows that industrial customers perceive wind energy as competitive and stable, says WindEurope’s CEO, Giles Dickson. “However, in some EU countries, regulatory barriers still exist to corporate PPAs. They will need to remove these in order to implement the EU Clean Energy Package”.

-Related solution: From Policy to Action – Implementation of the European Energy Union (whitepaper)

Background info

What is a Power Purchase Agreement?
Corporate Power Purchase Agreementa (PPA) are long term contracts where a company agrees to purchase electricity directly from a renewable energy generator rather than a utility.

The beauty of PPAs are that they provide financial certainty to energy generator and the project developer, which removes a significant roadblock to building new renewable facilities. Corporate PPAs therefore help to inject more renewable energy into the grid, thus reducing CO2 emissions.

-Sources: Energiwatch (in Danish) and Bloomberg New Energy Finance

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