Story of the month
Corporate Power Purchase Agreements are green electricity purchase contracts used by companies and have seen an average growth of 27% over the last 5 years. They have the advantage of fixing a guaranteed price over an average period of 15 years, thereby avoiding the volatility of market prices, and contribute directly to the development of renewable energy by guaranteeing financial flows to energy producers. The strong growth of artificial intelligence and its impact on data centre requirements (x3 by 2030) is leading the technology giants to increase the number of corporate PPAs (70% of the US market since 2018), enabling them to meet their green energy supply targets. With photovoltaic projects accounting for 80% of the total, this trend should benefit the entire solar value chain in the United States.
DEFINITION AND OPERATION OF A CORPORATE PPA
Corporate Power Purchase Agreements (PPAs) are electricity purchase contracts used mainly by companies to source green power. A distinction is made between ‘physical PPAs’, which govern the physical delivery of electricity, and ‘financial PPAs’, which organise a compensation payment between the parties based on the difference between the market price and the agreed price.
Physical PPAs are divided into ‘on-site’ and ‘off-site’ PPAs. Under the former, the energy producer supplies the company with a negotiated volume of electricity via a direct connection to the site, often in the form of a ‘microgrid’ powered by photovoltaic panels. In case of an off-site PPA, the electricity production is not located near the site and a distributor is responsible for delivering the energy.
The principle of a financial PPA is to financialise the product, i.e. electricity consumers and producers agree on a fixed reference price, usually with an inflation indexation clause. The customer undertakes to buy a certain volume of green electricity on the wholesale market and the energy company agrees to sell the same quantity. This allows the customer company to optimise its energy supply (limiting cost volatility), regardless of where its production sites are located. For energy producers, signing corporate PPAs allows them to finance the development of new renewable energy projects thanks to the predictability of cash flows provided by these contracts, which have an average term of around 15 years.
By guaranteeing 100% green supply and supporting the development of new decarbonised power generation projects, corporate PPAs are proving to be a powerful lever for accelerating the energy transition between now and 2030.
GROWTH ACCELERATED BY THE DEVELOPMENT OF ARTIFICIAL INTELLIGENCE
The corporate PPA market has grown by an average of 27% over the past five years, reaching an annual volume of 46 GW in 2023. Over the same period, solar projects underlying corporate PPAs accounted for around 80% of installed capacity in the United States. The dominance of solar technology can be explained by three main factors:
- The large amount of sunlight available
- Lower complexity and capex compared with wind projects
- The price competitiveness of solar energy, making it the best alternative to fossil fuels
Electricity demand has entered a super-growth cycle in recent years, driven by the digitalisation of the economy, the electrification of transport and the need to decarbonise industry. This trend is set to accelerate even further between now and 2030, with the exponential growth of artificial intelligence. As a reminder, a standard Google search consumes 0.3Wh of electricity, whereas a ChatGPT query consumes 3Wh, i.e. 10 times more.
Not surprisingly, the technology giants (Amazon, Microsoft, Meta, Google) have accounted for 70% of corporate PPA in the US over the past five years. Their aggressive development strategy in artificial intelligence, coupled with their commitment to 100% green power, should therefore continue to drive growth in the corporate PPA market.
Bloomberg NEF estimates that power consumption associated with the development of data centres to support the growth of artificial intelligence will triple between now and 2030, representing around 60 GW of new capacity. Growth prospects for the entire value chain of utility-scale solar projects are therefore likely to be revised upwards over the next 3 to 5 years.
OUR EXPOSURE TO THE US SOLAR VALUE CHAIN
The ODDO BHF Green Planet fund is currently invested in several key players in the US solar energy value chain:
- First Solar, a group specialising in the production of solar modules, generates 83% of its sales in the United States and is mainly (80%) focused on the utility-scale market. Thanks to its integrated development strategy and its competitive advantage in the technology deployed (a thin layer of cadmium telluride instead of the traditional silicon), the group is the main beneficiary of the tax credits granted under the IRA;
- Nextracker, market leader in solar trackers (with a 30% share of the global market), generates 65% of its sales in the United States and focuses exclusively on the utility-scale market;
- Quanta Services, a group specialising in the design and installation of electrical networks, generate 33% of its revenue from renewable energy infrastructure. Its main market is the utilities sector (58% of sales).
