Power Purchase Agreements
Who we’re helping
Applied to the U.S. Federal Energy Regulatory Commission for market-based rate authority, which is the right to buy and sell power in U.S. wholesale electricity markets, something that few other nonenergy companies had obtained at the time. We entered our first PPA later that year, with a 20-year agreement with a 114 -megawatt-capacity wind farm in Iowa
Let’s say it’s 2009. You’re a global technology company, and you need very large amounts of renewable energy. How do you get it?
Ideally you would just buy it from your local utility. But you can’t, at least not yet: Most utilities are still heavily regulated entities whose business model — keep the lights on and prices reasonable — lacks both mechanisms and incentives to respond to customer requests for renewable energy.
Next you might think about producing it yourself: Build renewable plants where you have demand — i.e., very close to your data centers. But most data center locations aren’t ideal for large-scale wind or solar production, and behind-the-meter on-site projects can’t meet these facilities’ 24-7 energy needs.
And this is all a big problem. Sixty-seven percent of all electricity in the U.S. is produced by burning fossil fuels, which accounts for nearly a third of America’s greenhouse gas emissions. This has to change. “We’re a data-driven company,” says Gary Demasi, director of Data Center Energy and Location Strategy for Google. “The science of climate change tells us that building a carbon-free electrical grid is an urgent global priority.” As data centers are one of the world’s fastest-growing electricity users, it’s good business sense for Google to go sustainable and good corporate citizenship to help others move in that direction.
We’re a data-driven company. The science of climate change tells us that building a carbon-free electrical grid is an urgent global priority.In 2009, our data center energy team began to study power purchase agreements (PPAs): large-scale, long-term contracts to buy renewable energy in volumes that would meet the needs of our business. The idea behind using a PPA is simple: Google can’t buy clean energy from our utilities because of regulatory restrictions on our retail contract, and we can’t produce nearly enough of it behind the meter at our data center facilities because of physical and geographical restrictions. But we can buy it at the wholesale level directly from developers on the same grids where we operate our data centers.
From a physical perspective, this is just as good as consuming the renewable energy directly. That’s because electricity on a grid is fungible; electrons generated in one spot can’t be directed to any specific user on the grid, any more than a cup of water poured into a river could be directed to a particular stream. So it doesn’t make much of a difference where the renewable energy that we buy is located, as long as it’s on the same grid as our data center.
From a contractual perspective, it’s less than ideal, but because regulated utilities offer few if any retail options to purchase renewable energy, this is often the only way to purchase utility-scale renewables on the same grids where we have consumption. The question becomes, “How do you get ‘credit’ at the retail level for the renewable energy you’re purchasing at the wholesale level?”
The answer is the renewable energy certificates (RECs) issued by the renewables industry to record every unit of energy that’s produced by renewable means. Producers can use RECs to verify how much clean energy they produce, and consumers can buy that verification to match against their consumption. When Google buys renewable energy, in addition to the physical power we also buy its corresponding RECs. We then sell the renewable electricity back to the wholesale market but retain the RECs. We run our facilities with ordinary power purchased from local utilities and permanently “retire” the RECs against our actual energy consumption, thus reducing our carbon footprint.
It’s a convoluted system, but long-term PPA contracts do offer Google the certainty of knowing how much we’ll be paying for future energy, while providing renewable energy developers the stability to finance and build new projects — thereby upholding the “additionality” principle that every power deal should add more renewable energy to the grid. “This purchasing structure wasn’t optimal, of course, since we essentially have to buy power ‘twice’ — once at the wholesale level and again at the retail level,” Demasi says. “But in 2009 optimal didn’t exist.”
So in 2010 Google applied to the Federal Energy Regulatory Commission for market-based rate authority, which is the right to buy and sell power in U.S. wholesale electricity markets, something that very few other nonenergy companies had obtained at the time. We entered our first PPA later that year, with a 20-year agreement with a 114 -megawatt-capacity wind farm in Iowa.
In the six years since, the cost of renewables has plummeted — wind energy is down 60% and solar down 80%. And unsurprisingly, PPAs have boomed; Google has signed 19 more agreements with a variety of structures (including PPAs) totaling nearly 2.6 gigawatts of renewable energy in the U.S., Europe, and South America, and the U.S. corporate PPA market has grown 60% year over year. We’re particularly pleased that in some markets, like Northern Europe and Chile, we’re able to buy from a developer through a PPA and then supply that renewable energy directly to our local data centers. “Many new projects have been built around the world,” Demasi says, “because of the commitment that Google made.”
We’ve had great success securing significant amounts of renewable energy at rates that are competitive with nonrenewable sources, proving that you can do great things for the planet and support the bottom line. But in many ways PPAs remain an imperfect model. And although there are more options today than there were in 2009, few utilities offer renewable energy to their customers. “A huge evolution needs to occur in the utility sector,” Demasi says, “for us to be able to buy the power we want from the source we want with the contractual flexibility and agility we need.” The industry is making good progress. But we’re still a long way from an ideal system for bringing renewable power from where the wind blows and the sun shines to where people live and work.
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