Inflation affects energy prices across the market, so the need for proper energy procurement plans that stabilize the price over the long term is omnipresent for all enterprises and industries. There has been an increase in Power Purchase Agreements (PPAs) that enable enterprises to secure sustainable energy, meet green goals, and not be at the mercy of market prices. According to a new report from global technology intelligence firm ABI Research, additional renewable capacity under PPA contracts grew between 2018 and 2022 to 36.7 GW, a CAGR of 22% in Europe and 40% in North America. Net additional renewable energy capacity will reach 106 GW in 2027, a global CAGR of 24%.
“The increase in PPAs has allowed the customer base to expand, not just be long-term physical contracts near the enterprise. Contracts can now vary from long-term (10+ years) to short-term (<3 years) periods, physical or virtual, and even be introduced at later stages of the project. New contract types for PPAs have set the stage for more enterprises to enter agreements that meet their individual needs and targets. This is starting to show with PPAs increasing their share of the capacity added each year,” states Sam Torbet, Industry Analyst at ABI Research.
PPAs are the only real solution that can scale to meet global needs and sustainability targets without burning a hole in costs. Torbet explains, “PPAs will become more common as governments enact policies for transparent emission reports while reducing incentive programs for renewable technology. These PPAs will be more advertised, with enterprises showcasing their contribution to net zero targets as the public trends toward more sustainable practices. For example, Asia-Pacific has seen the greatest growth with a CAGR of 74%, but this is mainly from such a small installed capacity back in 2018. This growth is unsustainable but may surprise the world at the rate they will keep.”
As more countries invest in renewables, the amount of assets needing funding will become problematic if the plan is to sell to the open market. PPAs are a way for asset owners to secure future revenue and lower the risk for investors. This is why the global growth for PPA capacity has grown by 29% in the last four years. Ørsted has enabled Danfoss, advanced technology engineers, to secure 27 MW of power, offsetting 31,000 tons annually.
Cost and Utility engagement are the main energy challenges for enterprises. “Their need for clean energy and stable prices drives purchasing strategies nowadays. PPAs are a tool that only larger companies (such as Amazon, Microsoft, and Google) have been able to utilize to its full extent. Still, variance from the standard PPA type will allow more enterprises to enter the market and help invest in cleaner energy,” Torbet concludes.
These findings are from ABI Research’s Energy Purchasing Strategies for Enterprises application analysis report.
