How Power Purchasing Agreements help companies cut costs


This week I am continuying my ten-month series based on articles I wrote for my Operations classes for my MBA at Presidio Graduate School. Hope you will like this series !

Last month for the first column of this series I was explaining how large US companies are going solar and installing PV panels on their rooftops. For this article, I will focus on Power Purchasing Agreements.

PPAs is an agreement between two parties, a buyer (typically a utility) and a seller or developer (a business, a school or government entity). The developer designs, finances and installs the solar or wind farms to a utility. In return for all this work, the developer gets electricity at a lower price from the utility as well as eventual tax credits and incentives. To sum up, PPAs are:

  • Available for both solar photovoltaic (PV) and Wind.

  • Allow a predictable low price of electricity for ten to 25 years.

  • Save money over current utility rates.

  • Help States reach their Renewable Portfolio Standards (WA: 15% by 2020, CA: 33% by 2020)

Many large companies in the United States have already signed PPAs, including Wal-Mart, Proctor and Gamble, Amazon or Google. Last year alone, deals representing 3,24 GW of capacity were signed. This is an exponential growth from 1,18 GW in 2014 and 770 MW in 2013. Figures before that were below the 200 MW mark.

ppa_deals_2008to2016updates_30_arrow

Source: http://www.renewablechoice.com/

As the Environmental Defense Fund noted on its blog

“ Yes, mainstream corporate America IS adopting clean and renewable energy and they are doing it cost-effectively. The winds of change are blowing in the right direction “. And this is done mostly for financial reasons as “  In just 2 years, the average payback for clean energy projects decreased dramatically from around 4 years to under 2 years “

Of course, not everything is rosy. Companies signing such contracts do not consume effectively the clean electricity they bought powering their plants and offices directly, as the US grid still relies a lot on coal and natural gas (33 percent each) and nuclear (20%).

Additionally, PPAs have to face regulations and limits from both Federal and local levels. The jump of PPAs signed last year was due to the uncertainty about the survival of the  federal renewable tax credits, some particularly interesting subsidies. This year, additions to the grids might be less than one gigawatt.

Image credits: Flickr, Tom.

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