In the first quarter of 2024, the UK’s renewable energy generation surged to 39 terawatt-hours (TWh), comprising 50.9% of the country’s electricity mix. This marks the second-highest level ever recorded, following the fourth quarter of 2023. Notably, wind energy has outperformed gas for the second consecutive quarter, with fossil-fuel generation totaling just 27.5 TWh.
The evolution of the market for power purchase agreements (PPAs) in recent decades has empowered data centers and other companies to negotiate customized energy contracts. This shift has undoubtedly contributed to a greener grid, as acknowledged by Aaron Binkley, vice president of sustainability at Digital Realty. However, there’s potential for data centers to enhance their efforts further. “We have 50 PPAs and have engaged in renewable sourcing globally for over a decade,” Binkley explains.
Increasing the proportion of renewables within the energy mix has become easier, thanks to mechanisms like PPAs, retail energy supply agreements, green tariffs from regulated utilities, and on-site solar installations. Data centers often serve as anchor tenants for new wind or solar projects. Negotiations have also become more straightforward as energy suppliers are now more accustomed to collaborating directly with corporate clients, allowing operators like Digital Realty to communicate their needs directly to utilities.
Despite this progress, the availability of renewable energy projects remains limited, with rising costs and shrinking timelines posing challenges. “In some markets, we’ve had to take renewables projects into our own hands,” Binkley states. This situation underscores to utilities that the industry is committed to pursuing renewable options, including via PPAs, if current providers fall short.
Warren Campbell, COO and deputy CEO of solar power developer Alight, concurs that PPAs have played a crucial role in creating “bankable business cases,” although he notes the significant human resources required to negotiate with various types of energy buyers. “PPAs are well-suited for large, new projects that need substantial energy over extended periods, allowing agreements typically lasting 10-15 years at fixed or indexed prices,” Campbell explains.
Some express concerns that data centers consume large amounts of energy, potentially driving up prices and reducing supply for other businesses and consumers. “For data centers, it’s essential to ensure additionality—in other words, purchasing power from new renewable sources that wouldn’t have been developed otherwise,” says Campbell.
The impediments to further renewable energy expansion are not solely related to PPAs but include grid capacity limitations, lengthy permissions processes, and the management of regulations and frameworks, especially in markets like the UK, Campbell points out. The market is relatively immature, with recent developments in marketplaces and requests for proposals designed to pressure prices.
Campbell notes the difficulty in discerning genuine interest from companies that are merely exploring options. “There are ample projects in development to fulfill our demand; the challenge lies in the pace of progress,” he states. He highlights that certain stalled projects are hindering the advancement of newer, more viable ones with respect to grid capacity.
Dale Vince, founder of the renewable energy company Ecotricity, argues that long-term power contracts for new green power stations make sense, although scrutiny should focus on how effectively these agreements contribute to building new green capacity. He insists that while big tech companies may advertise their financial commitments, the real impact remains uncertain.
Vince also suggests that PPAs could maximize their potential by promoting more on-site energy generation, as generating power close to consumption minimizes grid losses—estimated at about 5% of energy produced. “The on-site merchant wind power model—installing wind and solar next to data centers—could be highly efficient,” he emphasizes. He adds that while PPAs are not inherently problematic, issues related to greenwashing exist.
David Knox, global director of energy and sustainability at Colt DCS, observes improvements in PPAs over the past decade. “Previously, contracts could span hundreds of pages; today’s corporate PPAs function more like contracts for difference (CfDs),” he notes. CFds allow low-carbon electricity generators to engage privately with the government for assured pricing.
However, Knox warns that mismatches in the timing of energy generation versus usage remain. He recognizes the progress achieved in industry knowledge and scaling but stresses that without incentives like renewables obligations, substantial advancements might not have occurred.
Nevertheless, grid connectivity poses a significant challenge, and upgrades to the UK’s grid infrastructure are urgently needed. Knox argues that much of the groundwork for integrating more renewable energy has been laid, but current economic conditions might hinder future investments.
The issue of renewable energy intermittency is also pressing. George Borovas, a partner at Hunton Andrews Kurth, recommends considering small modular reactors (SMRs) to enhance power generation infrastructure in the UK. SMRs could be developed and deployed more swiftly than traditional large reactors, facilitating increased renewable energy adoption by providing backup power.
Helen Kinsman, senior vice president of commercial and regulatory affairs at Virtus Data Centres, emphasizes the growing demand for PPAs, stating, “I receive numerous requests for signing PPAs. Our commitment to the environment aligns with customer expectations.” Virtus assesses the market for potential projects based on deliverability, planning, land availability, grid connectivity, and overall emissions.
As the new Labour government moves forward with proposed construction planning reforms to accelerate renewable energy development, Kinsman highlights that legislation alone won’t suffice without the necessary infrastructure to support it.