The oil and gas industry has also become a potential source of PPA growth. In 2019, companies such as Occidental Petroleum, Chevron and Energy Transfer Partners signed PPA agreements on renewable electricity. Last year, ExxonMobil signed two PPA contracts for a total of 575 MW. [65] The high electricity load profiles of these companies, combined with their experience in project financing and the increasing pressure of divestment movements, could encourage these companies to intensify their activities in this area. Electricity and wind energy contracts are called ”power purchase agreements” or PPAs. PPAs are long-term contracts for the purchase of renewable energy in agreed quantities and at prices that meet the needs of both the producer and the consumer. These renewable energy agreements not only offer financially beneficial solutions for both parties, but also guarantee the supply of clean renewable energy to companies and allow investments in further developments in the field of renewable energy. A small number of technology companies have so far dominated the U.S. renewable energy market.

According to REBA, seven companies (including Facebook, Google, AT&T, Microsoft, T-Mobile, Walmart, and Amazon) accounted for more than 60 percent of the total reported renewable energy purchases tracked by the organization in 2019. [51] This figure illustrates how the purchasing decisions of a small number of large electricity consumers can have a significant impact on the market, a dynamic that needs to be discussed in more detail elsewhere in this report. The Intergovernmental Panel on Climate Change estimates that a 45% reduction in net carbon dioxide (CO2) emissions by 2030 compared to 2010 is needed to limit the rise in global temperature to 1.5°C. Over the same period, a 25% reduction in emissions is needed to keep the world on track for a 2.0°C increase. [2] The U.S. electricity sector has made significant progress in meeting these targets, with CO2 emissions down about 21.5% in 2018 compared to 2010. [3] This decline is largely due to the reduction in coal-fired energy and the switch to natural gas for electricity generation, as well as the increased use of renewables. However, overall economic progress in reducing emissions has been much slower, declining by about 6.5% between 2010 and 2018. [4] As renewable energy use increases in a region, periods of higher wind or solar generation tend to be correlated with oversupply of electricity and, therefore, lower electricity prices, as the market is saturated with electricity without marginal costs. This puts PPA buyers at risk that market prices will change over time and be below the strike price if the renewable energy producer produces the highest volumes (i.e., risk of covariance).

In turn, the net severance pay owed by the buyer can reach a much higher level over a longer period of time than expected. [128] The Appendix provides a general analysis of PPA prices for solar and wind energy relative to projected electricity prices for three specific regions selected as case studies: the Electric Reliability Council of Texas (ERCOT), the Midcontinent Independent System Operator (MISO) and the PJM Interconnection. Participation in green tariff schemes has become an increasingly important way for companies to support the additionality of renewables without having to commit to fixed-price contracts of 10 to 20 years. Under these programs, distribution utilities build or procure renewable energy on behalf of interested corporate customers. A fixed cost rate, usually increased, is then charged to customers who choose to participate. Companies in the U.S. purchased more than 5 GW of renewable electricity capacity through green tariffs between 2017 and 2019, according to Bloomberg New Energy Finance. [114] Utilities in regulated electricity markets have often offered these programs after being launched by large customers such as Google, Facebook and Walmart. [115] To fully understand what a power purchase agreement is, it is important to understand the state of the electricity generation industry. Traditionally, companies source electricity from utilities, often in the short term, with no long-term price certainty and no control over the source of energy supplied.

The procurement efforts of for-profit renewable energy companies in recent years have had an encouraging impact on efforts to decarbonise the energy sector, with a significant and growing share of wind and solar energy deployment now determined by the purchasing decisions of companies outside the traditional energy sector. It is therefore reasonable to note that the use of renewable energy in the United States would have been significantly different if private sector actors had not voluntarily taken steps to reduce their emissions. [134] ”Corporate Clean Energy Buying Leapt 44% in 2019, Sets New Record,” BNEF, p. 28. January 2020, about.bnef.com/blog/corporate-clean-energy-buying-leapt-44-in-2019-sets-new-record/; ”Corporate Clean Energy Buying reached a new record in 2018”, BNEF, 28 January 2019, about.bnef.com/blog/corporate-clean-energy-buying-surged-new-record-2018/; ”Companies bought record amounts of clean electricity in 2017,” BNEF, January 22, 2018, about.bnef.com/blog/corporations-purchased-record-amounts-of-clean-power-in-2017/; ”2020 Sustainable Energy in America Factbook,” BNEF, Business Council for Sustainable Energy, accessed January 9, 2021 data.bloomberglp.com/professional/sites/24/BNEF-BCSE-2020-Sustainable-Energy-in-Amercia-Factbook_FINAL.pdf. For non-beneficiary investors, a PPA or other form of long-term income hedging has often been a common requirement for their investments. In the past, the vast majority of PPAs were signed with utilities as buyers. In recent years, however, a trend has emerged: for-profit companies with tangible electricity loads have entered into long-term PPAs directly with renewable energy developers from onshore wind and solar power plants. The bullish scenario also uses the entire C&I electricity demand as a starting point, then eliminating the roughly 31-32% of demand in regulatory systems where VPAPs are not normally feasible. In this case, it is estimated that only 20% of the C&I burden is carried over by economic competition issues so that a larger portion of companies are willing to pay a green premium for their electricity.

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