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.”