Opinion: 3 ways cloud & colocation providers can use renewables
Article by Schneider Electric energy & sustainability services clean tech division co-leader John Powers
There’s a renewable revolution underway. Driven by the rapidly falling price of utility-scale wind and solar power, companies are committing to and procuring clean energy in ever-increasing numbers.
Demand is high in the cloud-service, colocation, and data center space where cost and reliability of energy supply are key considerations. These companies are also facing increasing pressure from their customers, who themselves are seeking cleaner, greener real estate.
With the likes of Equinix, Digital Realty, and Iron Mountain leading the way, the choices for corporate renewable energy have never been better.
Here are the top three ways that cloud-service and colocation providers can take advantage of this dynamic global market.
Offsite power purchase agreements
Offsite power purchase agreements (PPAs) have been a game-changer when it comes to large-scale, long-term procurement of renewable energy. Under a PPA, companies contract for power directly with a developer who provides projected cost-savings, risk mitigation, and a fixed-price for power in return.
Corporate PPAs generally take one of two forms:
- Direct – in which the company and the contracted project share a grid. Under a direct PPA (DPPA), the corporate offtaker receives direct delivery of the power generated from the PPA-supported project, typically sleeved through a retail electricity provider. Financial savings in a DPPA is achieved through grid-parity and the lower traded cost of wind or solar power on the spot market in the project’s regional grid location.
- Virtual – in which the contracting company does not share a grid with the project and hence does not take receipt of the physical power. Under a virtual PPA (VPPA) structure, the contracting corporation receives financial upside via a contract-for-differences, in which the difference in the price for the PPA and the price for their operational electricity use are settled on a regular basis. If the market price for the contracted PPA is less than their operational electricity costs (sourced from their local utility or retail provider), then the corporation is the benefactor of the delta.
In both DPPAs and VPPAs, companies also typically receive the affiliated Energy Attribute Certificates (EACs) for the project, which allow them to make carbon reduction claims.
Many companies are also drawn to PPAs for the potential claim of additionality—meaning that, had it not been for their involvement, the project could not have been built.
Both DPPAs and VPPAs allow companies to achieve renewable energy at a much greater scale than previously available. This is useful for companies that have set public goals, or who are rapidly growing and need a scalable solution.
PPAs are long-term and complex contracts. Like any contract of this type, PPAs are not without risk. It is therefore important for any company looking at PPAs to ensure they are using an advisor, like Schneider Electric’s Energy & Sustainability Services, as well as legal counsel.
Onsite (distributed) generation
Onsite, or distributed, generation of renewable energy also provides a viable solution, or an alternative to an offsite PPA.
Costs of these systems have also fallen in recent years and owning or leasing systems can provide companies with an asset co-located within their facility.
For some, pairing onsite renewable energy generation with battery storage, or investing in a potentially off-grid solution like a microgrid, is a natural offshoot from a distributed generation system.
Use of onsite solutions requires an up-front feasibility analysis comparing a company’s needs with its available resources. Some of the areas of consideration include:
- Demand + Available Real Estate: What real estate is there—either on the roof or on the grounds—to support a system? Will the size of the corresponding system be able to provide enough energy to meet the needs of that site?
- Finance + Legal: Will the company plan to purchase a system (or lease it)? Either choice comes with financial and legal implications. Ownership of a system typically requires a CAPEX investment that some companies may not be able to afford—no matter how fast the payback.
- Operations + Maintenance: Who will take care of the system? If the system is purchased outright, the corporation must maintain it. If the system is leased, how frequently will the leasing company provide maintenance, to ensure the system performs as expected?
- Environmental Benefits: Who will track the EACs generated from the system? Will the EACs be kept by the corporation—or will they be sold and replaced with a cheaper EAC from a different project?
Like an offsite PPA, onsite systems require consideration and consultation, as well as a completed sourcing exercise to ensure the best possible solution at the best possible price.
Energy attribute certificates (EACs)
For companies to make clean energy claims, regardless of solution, they must have possession of the corresponding EACs.
The EAC is the mechanism that conveys the environmental attributes of renewable energy generation. They are produced in a 1:1 ratio with the electricity itself, and without them, the clean power is just power.
Both offsite and onsite solutions generate EACs, which can be held by the purchasing company, or sold onto the EAC commodity market. In some regions, such as the U.S. PJM interconnect, EACs are very valuable, and can be a source of additional cost savings or even revenue.
EACs can also be purchased freely on the open commodity market, unbundled from electricity generation, or may be offered to a buyer bundled with their electricity via a program like a green tariff.
For some companies, bulk buying of EACs proves to be the right strategy. Companies can select EAC based on location, price, and technology type, and tranches of EACs are typically not sold further than three years in advance, which is a much shorter contract length than either an offsite PPA or an onsite system.
This is a much lower risk investment, although it does require CAPEX to purchase EACs. EACs can also be a critical instrument in global geographies where onsite or offsite solutions are not (yet) viable.
They are valuable to providers with a global footprint who may be seeking to meet aggressive renewable energy targets in these developing regions.