Datacentre power purchase agreements: Are they the right way to lower emissions?

[Author 0]

Datacentre power purchase agreements: Are they the right way to lower emissions?

Datacentre power purchase agreements: Are they the right way to lower emissions?

Renewables-based electricity generation in the UK shot to 39TWh (terawatt-hours) in the first quarter of 2024, or 50.9% of the mix. This is the second highest ever, after the fourth quarter of 2023. In fact, government reporting says wind generated more electricity than gas for the second quarter in a row, with fossil-based power just 27.5TWh.

The market opening up to power purchase agreements (PPAs) in recent decades has allowed datacentres and other corporations to negotiate their own energy deals. This has doubtless helped green the grid so far, as Digital Realty’s sustainability vice-president, Aaron Binkley, readily agrees. But could datacentres do better still?

“We have 50 PPAs and have done renewable sourcing for a decade in various regions, and probably every flavour globally,” says Binkley.

It’s certainly easier to increase the share of renewables in the mix than it was, including PPAs and access to renewables through retail energy supply agreements, green tariffs from regulated utilities, on-site solar, and more. Datacentres often come in as anchor tenants for new wind or solar farms.

Negotiations are easier now that energy suppliers have become accustomed to dealing directly with corporate entities, with datacentre operators such as Digital Realty regularly talking to utilities about their needs and wants.

Yet the renewables projects that corporations seek remain thin on the ground, even as costs rise and timelines shrink. “In some markets, we’ve had to take it [renewables projects] on ourselves,” says Binkley. “It’s not working effectively everywhere.”

This also demonstrates to utilities that the industry wants and will act on renewables, going elsewhere to get them, including via PPAs, if a current provider cannot deliver.

Warren Campbell, chief operating officer and deputy CEO at solar power developer and operator Alight, broadly agrees that PPAs have been effective drivers of “bankable business cases”, despite the “substantial” human resource needed to negotiate with different types of energy buyers.

“PPAs are fit for purpose, for big new projects requiring a lot of energy over a period of time, because typically you can sign for 10-15 years at either a fixed price or an agreed escalator type, based on consumer price indices or whatever,” says Campbell.

However, some feel that datacentres snaffle up energy, perhaps even driving up prices and reducing supply to other businesses and the public.

“For datacentres, additionality in energy is important, buying power from a new renewables source that wouldn’t otherwise have been developed into the grid,” says Campbell.

What is holding back further renewables roll-out is not PPAs but grid capacity constraints, the time-consuming, cumbersome nature of many permissions processes, as well as the way regulations and their frameworks are managed. That is true in many markets, including the UK, he points out.

Yet the market remains immature, with marketplaces and requests for proposals based on multiple-project buyer-customer relationships only recently emerging to put pressure on prices.

Campbell adds that it can be difficult to tell who is buying and not just kicking the tyres, learning what’s out there and how it all works.

Many businesses are trying to harness solar and wind energy. “Projects in development are probably more than enough over time to meet demand from us. The challenge is the speed at which it is happening,” says Campbell. “In the UK, a bunch of projects that will never get built for various reasons are blocking the ability of new, better projects to get grid capacity.”

PPAs make good sense for grid greening activities

Dale Vince, founder of renewables energy generator Ecotricity, says: “I’ve not heard anybody saying PPAs, as such, are a problem. The idea of laying down a long-term contract for power so that somebody can build a new power station, a green one, makes good sense.”

Scrutiny instead might focus on whether PPAs are driving the building and development of new green capacity, for example. How solid are any green claims? Vince points out that while big tech may boast about committing funds, actual impacts can remain uncertain.

I’ve not heard anybody saying PPAs, as such, are a problem. The idea of laying down a long-term contract for power so that somebody can build a new power station, a green one, makes good sense

Dale Vince, Ecotricity

However, PPAs could maximise their impact by driving more on-site generation. Maximum efficiency means generating and consuming power in the same place or nearby – grid losses comprise about 5% of the energy generated, says Vince.

“The on-site merchant wind power concept is the very best way – build some windmills next to it, build some solar next to it. It doesn’t have to be in a city on expensive real estate,” he says. “I don’t think there’s a problem with PPAs, other than the inherent, systemic problem of greenwashing.”

Greenwashing can also signify the realisation that companies should be greener; it’s progress when people seek a good story to talk about, to eventually evolve beyond, Vince offers.

David Knox, global director of energy and sustainability at Colt DCS, notes that a decade ago, contracts could be “hundreds of pages for each individual PPA, so they have got better – today’s individual corporate PPAs can work effectively like contracts for difference (CfDs)”.

CfDs are where a low-carbon electricity generator contracts privately with the UK government-owned Low Carbon Contracts Company (LCCC). Eligible bidders compete at auction for different renewables offerings, with successful developers paid a flat indexed rate for 15 years of electricity generation.

Knox says that although there can be a PPA mismatch between when the renewables are generated versus when they’re used, “getting to where we’ve got” represents progress and many successes. Industry has learned so much about the options, how things work and how to scale.

“Without some incentives, like renewables obligations, tough stuff like that wouldn’t have happened,” adds Knox.

On the other hand, grid connectivity remains a major issue, with UK grid infrastructure upgrades desperately needed. Arguably, the easy bit has been done on building in more renewables, not least because interest rates are unlikely to be as low in the near future, he warns.

The model for borrowing money to build and contract renewable assets is becoming harder to achieve, remembering that the price of renewables has varied by £50 to £100 or more per megawatt-hour in a matter of years.

“It’s tricky for us as a colocation operator, building sites and leasing the space,” says Knox. “In some instances, the [hyperscale providers] don’t want us to get involved. If I’m looking to sign a PPA, and my tenant says I don’t want your PPA but to float it on the deadhead market, increasing penetration of renewables in Europe can be hard for us.”

What about baseload when wind or solar fail?

The intermittency of renewables also remains unsolved. George Borovas, a partner at global law firm Hunton Andrews Kurth, suggests an industry move to baseline supply from nuclear, in the form of small modular reactors (SMRs), to answer the shortage of power-generation infrastructure in the UK.

SMRs can be developed and built faster than a conventional large reactor, he says, helping drive increased renewables by making more backup power available.

“It’s not happening in the market yet, but discussions are ongoing,” says Borovas. Asked to enumerate these discussions, he says he knows of numbers in the “double digits”.

I have myriad requests around signing PPAs. We want to respect our environment, and our customers want us to as well. Most datacentres that weren’t buying renewables a few years ago definitely are now

Helen Kinsman, Virtus Data Centres

“If a major technology provider signs a partnership agreement with Company X to develop a fleet of nuclear reactors to power datacentres in the US, UK, Europe or Asia, that is going to be a sea change,” he says. “Everybody’s going to want to do that too. Someone has to be first – and these discussions are being had now.”

Computer Weekly understands that a Borovas-led team from Hunton Andrews Kurth advised RoPower Nuclear regarding an SMR deployment project in Doiceşti, Romania, in September 2024.

Other long-duration energy storage (LDES) solutions may also bear fruit, such as flow batteries, thermal energy storage, pumped-storage hydroelectric power, compressed air, hydrogen, and gravity storage technology, despite remaining technical challenges.

Helen Kinsman, senior vice-president of commercial and regulatory affairs at Virtus Data Centres, says PPAs are popular. “I have myriad requests around signing PPAs,” says Kinsman. “We want to respect our environment, and our customers want us to as well. Most datacentres that weren’t buying renewables a few years ago definitely are now.”

Right now, Virtus typically puts its requirements to market via consultancy, finding “five or six” projects that can be graded by deliverability, planning issues, land available, secured grid connection date, work stage, funding, potential private-wire access, or overall emissions.

“If they’re saying, ‘Oh, I’ve got this field in Wiltshire and spoke to the farmer who assures me it is fine and there’s a substation down the road’, obviously that’s not going to score so well,” says Kinsman.

All eyes and ears are on the new Labour government’s proposed construction planning reforms to bring renewables further forward too. The consultation closed on 24 September. As Kinsman says, you can have all the legislation you like, but you need the infrastructure to deliver.

Source link

#Datacentre #power #purchase #agreements #emissions

Pelican News

Source Link