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New renewables 'mega-buyers' emerge in European heavy industry


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New renewables 'mega-buyers' emerge in European heavy industry

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Onshore wind turbines in Emden, Germany. Many of the country's industrials are not yet aligned with national climate ambitions.
Source: Hulton Archive via Getty Images

Heavy industry is increasingly driving demand for renewable power as emissions-intensive companies respond to decarbonization pressures and the need for long-term electricity supplies.

Companies in the sector have agreed on more renewables power deals this year than in the last two years combined, according to the RE-Source Platform, a forum for corporate renewables sourcing. Heavy industry accounted for about 20% — or 1.1 GW — of this year's corporate market for renewables power purchase agreements, or PPAs, RE-Source said.

German chemicals producer BASF SE and French industrial gas giant Air Liquide SA are among those to sign long-term renewables PPAs in 2021. Other makers of traditionally pollution-heavy products such as steel, cement and, increasingly, hydrogen will likely follow suit due to environmental pressure from customers and investors as well as looming net-zero emissions policies.

Tech companies have historically dominated the corporate PPA market, but the growth in demand from heavy industry points to a "new class of mega-buyers," said Luca Pedretti, COO and co-founder of PPA market and analytics platform Pexapark.

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'Incredible demand'

BASF, the world's largest chemicals company, agreed in November to buy 186 MW of power from Ørsted A/S's Borkum Riffgrund 3 offshore wind project and closed a 25-year deal with Engie SA to take up to 20.7 TWh of electricity, initially from wind farms in Spain.

"The chemical sector has a challenging path toward decarbonization, but it will also make one of the biggest contributions," Ørsted CEO Mads Nipper said in a news release after the deal with BASF.

Meanwhile, Air Liquide signed a PPA with TotalEnergies SE to buy 50 GWh of renewable power per year for 15 years, and Spanish steel company Sidenor Aceros Especiales SL and German cement-maker HeidelbergCement AG have also struck PPAs this year.

Green hydrogen is a key driver of interest in renewables PPAs. Companies are planning to produce vast quantities of hydrogen to decarbonize chemical and industrial processes, for instance, which will require gigawatts of new renewables capacity.

"It's undeniable," said Ekow Yankah, CEO of digital investment platform RealPort. "[Hydrogen] will create incredible demand." That will also mean PPA deals of greater scale in the coming years, Yankah said.

'Long-term opportunities'

It is unclear whether enough renewables capacity can be built quickly enough to meet corporations' needs, especially given the amount of power required for hydrogen, Pexapark's Pedretti said.

Supply and demand could become even tighter as more companies seek green electricity. In Germany, for instance, one in three major corporations is yet to put targets in place to comply with the country's updated climate law that requires net-zero emissions by 2045, five years earlier than the previous timeline, according to S&P Global Ratings.

Of the 35 largest German companies covered by Ratings, 35% do not yet have a net-zero target in line with the new climate law, the agency said in a Nov. 29 report. Several companies are aligned to the old 2050 net-zero target, including BASF, airline Deutsche Lufthansa AG and car-maker Volkswagen AG all among the top 10 corporate emitters in Germany — and may eventually update their goals.

"Many market participants are focusing on the cost and business implications of [Germany's] accelerated [net-zero] timeline, but we believe the way corporations manage their emission-abatement efforts could also create long-term opportunities," Ratings analysts said in the report.

On the back of its PPA activity, BASF announced in November the establishment of a dedicated renewables division to develop renewables projects in-house and continue its procurement of green power from third parties. To reach net-zero, the company anticipates needing three to four times as much renewable electricity as it consumes today, which stands at 9 TWh annually.

"The reliable and efficient supply to BASF with sufficient quantities of electricity from renewable sources at competitive prices is necessary for the implementation of our goals and the achievement of the targeted climate neutrality," Horatio Evers, managing director of BASF Renewable Energy GmbH, said in a statement at the time.