As companies worldwide strive to meet decarbonization goals and the demand for green power generation surges, 24/7 clean power purchase agreements (PPAs) are emerging as a crucial solution. These agreements, with their unique ability to provide constant green power precisely timed to meet demand, are facilitating investment in nascent technologies and enabling their widespread deployment. In this article, we will explore the significance of 24/7 clean PPAs, the trends driving their growth, the challenges they pose, and the capabilities required to make the most of this powerful instrument.

Harnessing the Power of 24/7 Clean PPAs for a Greener Future

Deployment of Renewable Energy Sources

Renewable energy sources have been on the rise globally, largely driven by government-backed subsidies and tariffs. However, as these subsidies are being phased out, market-based finance instruments like corporate PPAs are gaining prominence. In Spain, for instance, PPAs have acted as a catalyst for renewables development, supported by favorable resource endowment, established supply chains, and favorable regulation. Before 2019, Spain installed less than 1.0 gigawatt (GW) of new renewables capacity per annum. But from 2019 to 2023, these rates exceeded 2.7 GW, reaching a peak of almost 12.0 GW in 2022. This surge in renewables has been significant, but it also faces headwinds such as a lower average power wholesale spot price and increased volatility in the first half of 2024.

Hyperscalers and the Drive for 24/7 Clean PPAs

Under the RE100 global corporate renewable energy initiative, more than 400 companies from over 175 markets, with a combined annual power demand of over 500 terawatt-hours (TWh), have committed to 100 percent renewable power consumption. Certain energy-intensive data center hyperscalers have gone a step further, promising to time-match demand and generation. Google, for example, has announced its plan to procure clean energy around the clock by 2030 on every grid it operates. At the start of 2024, Google contracted its largest PPA so far, with 478 megawatts (MW) in new offshore capacity, enabling 90 percent hourly clean energy consumption in its Dutch operations. Microsoft has also committed to becoming carbon-negative by 2030, with green power for all its data centers. A pilot 24/7 clean PPA was contracted in 2020 with Vattenfall to cover Microsoft's Swedish power consumption. Together, Microsoft and Google have launched the Granular Certificate Trading Alliance to help match supply and demand around the clock. However, implementation pathways vary, and different approaches are being explored to drive the deployment of carbon-free generation and flexibility instruments.

New Capacity Requirements and the Cost Challenge

Currently, global data centers consume 500 to 600 TWh, which is 1 to 2 percent of the total global power supply. But by 2030, this could increase three to fourfold, reaching over 2,000 TWh. To meet this demand, substantial new (clean) generation capacities are needed. For example, if half of the 2030 global power consumption linked to hyperscaler data centers were to be powered by renewables, the necessary dispatchable generation, such as long-duration energy storage (LDES), would amount to 65 to 85 GW, roughly the size of the total installed power generation capacity of a country like Poland or Vietnam. However, the cost of 24/7 green PPAs is a significant barrier. A report by the Long Duration Energy Storage Council and McKinsey in 2022 put the cost at above $200 per megawatt-hour (MWh) in most regions. When using novel storage technologies like LDES, this could drop below $100 per MWh, but it still requires customers to pay a significant green premium. Hyperscalers are exploring alternative nonfossil power supply options like small modular reactors (SMRs) to address this cost challenge.

New Capabilities for Renewable Power Suppliers

Commercial expertise has always been crucial for renewable power suppliers, but with the emergence of 24/7 clean PPAs, new capabilities are required. Traditionally, renewable developers and operators focused on technical and engineering excellence. Now, they need to develop skills similar to those of energy trading houses that manage complex contracts across oil, gas, and power. This includes supply origination and portfolio management, product development, pricing, and bid management, trading and risk management (including financing), and commercial asset optimization (including operations and dispatch). Companies already active in power trading may have some of these capabilities, while others may choose to integrate existing expertise with newly developed ones or strengthen capabilities through M&A. For example, Statkraft operates a global trading desk that integrates and optimizes its renewable, conventional, and flexibility assets. Japanese companies, which have only recently started considering 24/7 clean PPAs, are forming new ventures like Jera Cross to provide 24/7 carbon-free energy and green transformation services.PPAs have proven to be successful in the power market, but their time incongruence limits their ability to achieve full decarbonization. Next-level 24/7 clean PPAs could offer a solution by providing 100 percent green energy on an hourly basis, opening up new investment opportunities. However, organizations will need to strengthen their competencies to make the most of this powerful instrument.