American big tech goes green, driving PPA market

This article compares the activity of US based companies, both corporates and utilities, versus European companies in the global PPA market. A Purchasing Power Agreement (PPA) is a contract between the corporate buyer (off-taker) and the power producer (developer, independent power producer, investor) to purchase electricity.

The PPA market has a long history in the US. Hence US based companies have been most active, both in the US and abroad. PPAs in renewables are a newer phenomenon for European based companies mostly as many European countries offered regulatory support. In recent years activity from European companies is catching up towards levels from US based companies. For 2021 we expect the gap to narrow further with 20 GW of new PPAs from US based companies and 16 GW from European companies.

Bigtech dominates the PPA market among US based companies. Amazon, Google, Facebook, Microsoft and Apple together have 25 GW of PPAs outstanding. The majority is related to wind and solar projects in the US, although they now also source renewable electricity in Europe through PPAs. Amazon, for example, recently bought half of the power from Shell’s offshore wind farm near the Dutch coast to green the power in their European warehouses (see table below).

Activity from European companies is catching up but activity is not dominated by bigtech companies. The five European companies most active with PPAs come from different sectors, like energy (Total), manufacturing (Norsk Hydro), food & beverages (AB InBev), chemicals (Dow) and transportation (Deutsche Bahn). Unlike Total and Norsk Hydro, the top 10 players so far have sourced less than 1 GW of green power through PPAs.

Some of the large players in the global PPA market source their power from both wind and solar projects. In doing so, they benefit from the different solar and wind generation profiles. The diversification effects of wind and solar and a portfolio of multiple projects at different weather locations allow off-takers to create more stable renewable power production during the day and week.

However, wind and solar diversification is often far from perfect. On days or hours when the wind and solar assets of the PPA produce little power, the company still needs electricity, which it gets through the grid. PPAs are a good way to procure a companies’ annual power demand in a sustainable way, but not on a daily or hourly or on a minute-to-minute basis.