The new renewable energy investment tool for businesses: Power Purchase Agreements
Power Purchase Agreements (PPA’s) have been a powerful tool for companies to invest in renewables for several years now. For those of you not familiar with PPA’s, they are agreements to purchase energy from a designated supplier.
As part of their sustainability strategies, big corporations use PPA’s to buy renewable energy from sources like wind and solar farms. In 2015, businesses used PPA’s to purchase over 3.4 gigawatts of renewable energy.
For renewables, it has been an incredible boon. PPA’s present long-term contracts with economic predictability for developers of big solar and wind projects. That dynamic has served as an accelerant for green energy. There is no debate that PPA’s have been a great thing for sustainable energy production and a cleaner, greener planet.
As with many massive strides, there are consequences. PPA’s to date have not sought to match generation to load, and this shortcoming eventually presents a long-term hangover. To understand that, let’s imagine a simple residential scenario with a fictitious homeowner, Logan, to make the point. Logan uses energy as presented in the following graph.
Now, let’s say that Logan puts solar on his roof. He decided that he wants to be “net-zero carbon”, so he installs solar capacity “B” that, while oversized for his needs during the day, perfectly balances his total consumption “A”.
Logan feels great. He’s net-zero carbon. “A” = “B”. He proudly tells his neighbors that he’s doing the right thing for the environment. And he is.
But there is a small asterisk.
Because Logan’s actual use during the day “C” is only a subset of his solar production “B”, Logan’s production is going to his neighbors, the gas station, and the 7-Eleven down the street. When he gets home, Logan still needs the utility to supply coal or gas-sourced energy for his evening and nighttime needs.
In other words, Logan still exerts carbon demand that equals “A” — ”C”, even though he is funding offsetting production of “B” — “C”.
That’s fine until there’s too much solar energy being produced during the day, and the utility can no longer use Logan’s excess energy. At that point, the utility curtails solar production, and lets the excess energy “fall to the shop floor”.
That is already happening in places like Hawaii and California.
Once it happens, Logan isn’t really “net zero” anymore. Real problems materialize that end up slowing the progress of solar. The utility proverbially says “uncle”.
That drama is playing out in places like Nevada as we speak. Unfortunately, if Logan lived in Nevada, he’d be feeling the real pain of that problem because Nevada changed the net metering rules that financially justified his investment in solar… without any grandfathering.
Short story, “net zero” is no longer sufficient for bragging rights or for grid health. “True zero” is the new bar.
To be “true zero”, Logan would need to deploy batteries. With those batteries, Logan could store his excess solar production and use it to serve his energy needs after the sun sets. Bringing it back to PPA’s… For corporate entities working on their sustainability strategy, simply entering into renewable PPA’s is no longer sufficient either. To remain sustainable, corporate programs need to advocate for and invest in supply relationships that match generation and load, with an ultimate goal of “true zero”.
It’ll be a while before big companies can get all the way there. Between now and then, it’d be great to see the following:
Technology to dynamically assess purchased generation from a given renewable source against a remote meter (load) to understand “used” and “excess” generation from that source
An independent measurement company develops a “% carbon-free” metric (Essentially, “C” / “A” in the above graph.)
Sustainable buyers and renewable suppliers to develop new, storage-backed PPAs that marry supplier generation to buyer load
And, of course, I welcome support for storage incentives that get us to a balanced, renewable-powered grid more quickly.
National Geographic: These Old-School Companies Are Going Big With Solar and Wind