The Weekend Read: The hows and whys of corporate PPAs


The trend towards increased corporate adoption of clean energy is undeniable. According to Bloomberg New Energy Finance (BNEF), 43 corporations in 10 different nations signed contracts for more than 5.4 GW of wind and solar projects in 2017, the largest volume seen to date in a trend of linear growth over the past six years.

This included the largest corporate solar PPA to date: Apple’s contract with utility NV Energy for the output of a 200 MW solar project in Nevada. Since that time, data center provider Switch has announced a far larger project at 1 GW in the state.

There are many reasons for this growth. Corporate clean energy commitments are a big driver, and at the time of writing this article 132 companies had made commitments to move to 100% renewable energy. This has been led by the world’s biggest tech companies, including Microsoft, Apple, Google, Facebook, and Amazon. These have been joined by massive banks, such as Citi, Goldman Sachs, and HSBC, as well as food and retail giants such as AB InBev, Nestlé, and Walmart.

As time goes on, the economics of renewable energy are becoming more and more compelling, and there is also a business case to be made. Along with this, in recent years there has been a shift from procuring solar to wind, and in the United States a geographical shift in the location of projects to meet this demand.

And this is anything but a simple matter. Signing a power contract with a physical project can be a complicated undertaking, and there are a number of options within the world of power purchase agreements (PPAs).


Choices, choices

Contracts with large, off-site projects are only one option for meeting energy demand and renewable energy goals. Another popular option is to install solar on the roof of your company’s facilities.

This is a simpler option, and has been popular with retail companies including Target, IKEA, and Walmart, which have led on-site solar in the United States. These projects can offer attractive savings, particularly if done under net metering. However, they don’t solve this issue for every company, particularly the large tech companies that want to quickly meet renewable energy mandates and may not have roofs that accommodate their large electricity demand.

In the past many corporations were content to buy renewable energy credits, however this is changing. Kyle Harrison, who studies corporate energy strategy at BNEF, calls the move to PPAs “the biggest overall trend in company strategies in this space,” and notes that companies want to incentivize new build, and to be able to point to specific projects.

As time goes on, the economics of doing this are becoming more attractive as well. Harrison says sustainability and savings are the two biggest drivers, and notes that while some companies have traditionally been willing to take a minor loss, “if you sign the right deal with the right project, you can save money in this space.”

Harrison notes that the falling costs of wind and solar are growing this market, as they have “opened the door” for a lot of companies that want clean power but aren’t willing to pay a premium.

But while corporate PPAs have picked up pace in recent years, Harrison and others say that there has been limited cannibalization of the on-site solar market, and that both are growing. Another option, which has been popular with smaller companies has been to sign on to community solar projects. However, for large electricity users including data centers the amount of capacity available through this option may not suffice to meet their goals.


Different flavors

Within the world of corporate PPAs there are also a number of distinct options. Most of the corporate PPAs that have been signed to date are “virtual” PPAs, meaning that the project can be located in the service area of any deregulated utility in the United States.

In addition to this there are a small number of what BNEF calls physical PPAs, however these are typically confined to companies like Google and Apple that have registered with FERC to become participants in wholesale power markets. This in turn requires a greater degree of technical expertise.

“Being able to sign a physical PPA gives them just a little more control,” notes BNEF’s Harrison. “They want more freedom.”

How the PPA is structured also influences the risk that off-takers are subject to. This may seem like a strange concept, as one of the advantages of wind and solar is that as nearly all the costs are up-front, they can produce electricity at a relatively stable and predictable price without having to factor in fluctuations in fuel costs. However, they must still sell their electricity into the wholesale market, and here is where the risk comes in.

In corporate PPAs, both developers and off-takers are subject to this risk. Virtual PPAs are typically structured wherein the project sells its power into the local node, taking the local node or hub price, and a contract for difference settles this with the price at the node where the corporation is consuming electricity. The corporation saves money if the wholesale price is higher than the price it is paying under the PPA, and the developer pockets the premium between the wholesale price and the PPA price.

There has been innovation in this space, and BNEF notes the presence of “collared” deals, where the wholesale price is capped at a certain point, reducing the risk for developers.

It is also important to note that risk is nothing new to large power users, and as such PPAs can give these companies a new tool to work with. “I think at Microsoft we think a lot about how we manage our wholesale price risk,” Microsoft Director of Renewable Energy Kenneth Davies tells pv magazine. “Even if we think that the wholesale price will fall, we still want to hedge that.”


Green tariffs

In addition to the more straightforward PPAs, a number of corporations are signing up to buy power from renewable energy facilities under “green tariff” arrangements with utilities, such as Apple’s deal with NV Energy for the Techren Solar project. This is a simpler arrangement for corporations and can shield these companies from risk. “Most green tariffs don’t expose the customer to the wholesale market price,” notes BNEF’s Harrison.

He says that calculations of what a utility will pay over a three or five year period for electricity, similar to the “avoided cost” calculations used in PURPA contracts, are a common way of structuring green tariffs, but that some are being structured to give buyers exposure to local prices.

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However, it is important to note that many green tariff deals are structured for particularly large consumers. Harrison notes that there are still a lot of details that haven’t been worked out in the green tariff model. “It’s not like that blueprint has been created for other companies,” he observes.

Despite these limitations, Harrison estimates that green tariff deals represent 25% of the new PPAs that BNEF has recorded over the past few years, and that this is increasing.



One often underappreciated aspect of energy in the United States is the diversity of market conditions across regions, and renewable energy is no exception. As wind and solar deployment are concentrated in certain regions, they are having their own, very different impacts on wholesale markets.

BNEF notes that the corporate PPA space has traditionally been dominated by wind deals in the ERCOT (Texas), Southwest Power Pool (SPP), and Midcontinent Independent System Operator (MISO) grids, where wind is cheap due to excellent natural conditions.

Along with the push toward solar there has been more action in the Southeast, Southwest, and in Nevada, through green tariffs, including Microsoft’s March signing of power contracts with 315 MW of solar projects built by sPower in Virginia.

BNEF says that the 14 state PJM Interconnection grid has also become an attractive location for solar projects. This is in large part due to falling wholesale prices, as in many of the places with the richest wind resources, wholesale prices are being suppressed region-wide at times of high wind output.

This effect happens with solar as well, and pushes corporate wind and solar to new locations with less capacity. “In PJM you have less penetration of renewables, so the realized price of solar is not as suppressed,” notes BNEF’s Harrison. He notes that even with generally higher prices for utility-scale solar in PJM versus wind in the plains states, the overall economics are still better.



While the volume of capacity under corporate PPAs continues to grow each year, in many cases the demand for PPAs with off-site projects is exceeding supply. This demand is not limited to corporations.

At the Solar Energy Industries Association’s (SEIA’s) recent Solar Goes Corporate event in Boston, Kenny Habul, President and CEO of developer SunEnergy1 noted that there is five times the demand from universities alone for PPAs with solar projects than there are projects in PJM.

However, Habul also expresses concern about changes to the Public Utilities Regulatory Policies Act (PURPA), noting that open-access tariffs are necessary for virtual PPAs.

GTM Research Solar Analyst Colin Smith says that corporate PPA deal volumes could contract slightly in 2018, but looking further forward he sees new demand coming from other sectors of large power users, such as chemical companies.

“There are other industries too that are going to start realizing that this is something worthwhile to them,” notes Smith.


Going it alone

As some companies go deeper into procuring renewable energy, some are choosing to bypass their utilities. While there is the well-known case of MGM Resorts and Wynn Energy paying nearly $100 million to break away from Nevada utility NV Energy, this is not the only time that this has happened.

Last July, Microsoft partially bypassed utility Puget Sound Energy in a deal to procure renewable energy directly from the wholesale market for a new campus. While this included a $27 million payout, BNEF notes that this may have been worth it for the tech giant.

“For a lot of companies that have paid these exit fees, they want more freedom,” explains BNEF’s Harrison. But he also notes that Microsoft and other companies can get better rates on the market, which means that they may actually end up saving money.

But this does not mean that Microsoft is quitting utilities altogether, as its partial exit from PSE was followed by its green tariff agreement in Virginia.

In some cases, corporations are also choosing to bypass PPAs altogether and own projects themselves. This is already an option for Apple and Google, given their ability to participate in wholesale markets.

Corporate procurement of renewable energy is growing, evolving, and moving into new geographies and new industries. In the longer term, the growing sophistication of corporations in this space is a threat to utilities and is forcing these utilities to develop new structures to keep these customers.

It is not clear what new relationships will emerge in the coming years, except that corporations and other large energy users appear to be developing an increasing understanding of renewable energy, and that the roles of both large consumers and utilities are changing.

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