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In This List

Corporate green power deals grow larger as ESG pressure intensifies

Greenhouse gas and gold mines Nearly 1 ton of CO2 emitted per ounce of gold produced in 2019

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Corporate green power deals grow larger as ESG pressure intensifies

SNL Image

The 1,057-MW Fosen Vind complex in Norway, made up of six wind farms, will sell about a third of its output to aluminum producer Norsk Hydro ASA.
Source: Ole Martin Wold via Statkraft AS

Spurred by rising pressure to reduce emissions, corporations are increasingly buying electricity from wind farms and solar parks — and as demand for such deals grows, so does their scale and complexity.

Oil major Total SE's recent commitment to power all its industrial sites in Europe with more than 3,000 MW of solar capacity in Spain continues the trend of ever-larger corporate off-take agreements in the renewable energy industry, and means the world's five largest such deals have all emerged since September 2019, according to an S&P Global Market Intelligence analysis.

Total, alongside partners, is developing more than 5,000 MW of solar capacity in Spain and said Sept. 25 that the output from more than half of that capacity — equating to 6 TWh per year — will be used to power its European operations by 2025 under the biggest corporate power purchase agreement, or PPA, in the world to date.

The deal supports Total's plan to increase its annual investments in renewables and power as it aims to diversify from its traditional oil and gas business. It will also help to decarbonize its own energy use at a time of rising pressure for companies to act on environmental, social and governance issues.

"There's a lot of companies ... who are willing to green their electricity," Patrick Pouyanné, Total's chairman and CEO, said during a Sept. 30 strategy call. "Everybody is committing today to carbon neutrality."

But while the company may have shot to the top of the rankings when it comes to the world's largest corporate PPAs, it remains something of an outlier in a list of off-takers largely dominated by tech giants and industrial companies.

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Total's deal is notable in that the company is buying the output of power plants it will co-develop and own, whereas the majority of corporate PPAs involve renewable energy developers selling green power to large consumers, often with a utility or trader acting as an intermediary.

The tech industry has emerged as by far the largest sector of buyers in these transactions, both in the U.S. and Europe. In September 2019, Alphabet Inc.'s Google LLC announced what it billed as the largest corporate PPA ever at the time, contracting a total of 1,600 MW across 18 separate deals with wind and solar operators in the U.S., Chile and across Europe.

The deals increased Google's portfolio of wind and solar agreements to more than 5,500 MW and other U.S. tech companies, notably AT&T Inc. and Facebook Inc., have also made large-scale commitments over the past 18 months. Facebook has already signed three separate deals with developer Apex Clean Energy Inc. alone this year, while AT&T contracted with Duke Energy Corp. and Invenergy LLC for a combined 960 MW last September.

READ MORE: Sign up for our weekly ESG newsletter here, read our latest coverage of environmental, social and governance issues here and listen to our ESG podcast on SoundCloud, Spotify and Apple podcasts.

Altogether, U.S. tech companies have signed a total of over 16,600 MW of renewables contracts to date to run their power-hungry data centers, according to S&P Global Market Intelligence data.

But the largest single PPA for renewable energy was signed by Denmark's Ørsted A/S and chipmaker Taiwan Semiconductor Manufacturing Co. Ltd., or TSMC, in July of this year, covering the full output of the 920-MW Greater Changhua 2b & 4 offshore wind farm projects in Taiwan. Corporate PPAs for offshore wind parks have emerged only recently and are often more complicated to arrange because of the wind farms' size, which means single off-takers are rarely capable of taking their full output.

The companies buying the power see PPAs as an easy way to green their businesses in the face of growing pressure on carbon reductions and are increasingly looking to finance projects in the development stage to provide so-called "additionality" with their investments.

"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," Google CEO Sundar Pichai said in his announcement of the 1,600-MW suite of contracts last year.

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Developers also point out that renewables have become so cost-competitive that their off-takers are simply locking in cheap power supply for the next decade.

For the utilities and other investors with stakes in renewables projects, the PPAs offer a route-to-market similar to government subsidies, giving a clear long-term revenue stream and enabling access to cheaper loans, for example.

The PPA with TSMC was Ørsted's fourth fixed-price corporate deal in less than 18 months, and the utility sees more depth in the green power buying pool, largely thanks to tech giants like Apple Inc., Facebook, Inc. and others "getting the ball rolling and really influencing [and] spilling over into other industries," CEO Henrik Poulsen said on the company's second-quarter earnings call on Aug. 12.

Market growth

In the face of the pandemic, corporate PPA volumes in the U.S. — especially the previously hot Texas solar market have slowed down so far this year, although Europe, Latin America and Asia have fared better when it comes to contracted capacity, according to data from BloombergNEF. In Europe, the first "virtual" PPAs are now starting to emerge, bringing in a concept pioneered in the U.S. that could spur more growth in the market.

With roughly 8,900 MW of new PPAs globally through July, companies are ahead of the pace of last year's record dealmaking, when they contracted for a record 19,700 MW over the full year. But BloombergNEF said in August that buyers will have to speed up activity to reach a similar level by the end of 2020.

A plunge in power prices resulting from the coronavirus pandemic has theoretically made it more attractive for corporates to lock in long-term deals, but higher risk of default among off-takers and uncertainty on the broader economic outlook continue to weigh on deal activity, said Luca Pedretti, COO and founder of European PPA analytics platform Pexapark.

But against the backdrop of rising ESG considerations, analysts expect renewable energy demand from corporations to remain strong overall across the globe, with more and more companies pledging to cover 100% of their electricity use with renewables or even becoming "carbon-negative" businesses. More than 260 companies worldwide, with a combined electricity demand of 281 TWh per year, have made such commitments as part of the RE100 initiative, and the occasion of Climate Week brought another flurry of similar announcements in late September.

In the long run, that is giving confidence to renewable energy producers.

"There is no doubt that TSMC is responding to incentives from both the Taiwanese government, but frankly, also from their large customers putting requirements on them to decarbonize their production," Poulsen said. "And these large customers will add similar requirements to other sourcing agreements around the world."