A newly released report by ABI Research, a global technology intelligence firm, highlights significant growth in additional renewable capacity under Power Purchase Agreement (PPA) contracts between 2018 and 2022.
The report underscores the vital role of PPAs in advancing the renewable energy landscape, with a forecasted net additional renewable energy capacity of 106 GW by 2027, exhibiting a global compound annual growth rate (CAGR) of 24 percent.
The increase in renewable energy capacity procured through PPAs is substantial, with 36.7 GW added between 2018 and 2022, registering a CAGR of 22 percent in Europe and an even more impressive 40 percent in North America. The versatility of PPAs has allowed for greater customer engagement, enabling contracts to span various durations, from long-term (10+ years) to short-term (<3 years) periods, both physical and virtual, and at various stages of project development.
Sam Torbet, Industry Analyst at ABI Research, emphasizes that new contract types for PPAs have opened doors for more enterprises to align renewable energy agreements with their unique needs and targets. This flexibility is evident in the increasing share of capacity added through PPAs each year. The potential for PPAs to contribute significantly to sustainability goals and net zero targets is being recognized globally, further motivating their adoption.
Torbet notes that as governments introduce policies for transparent emission reporting and curtail incentive programs for renewable technology, PPAs will gain prominence as an effective solution to scale renewable energy deployment without incurring excessive costs. The Asia-Pacific region, in particular, has demonstrated rapid growth with a staggering CAGR of 74 percent, albeit from a relatively small installed capacity in 2018. Despite this rapid growth, sustainability may become a challenge due to its current rate.
As nations continue to invest in renewable energy, financing assets for sale in the open market could become challenging. PPAs emerge as a strategy for asset owners to secure future revenue and minimize investment risks. The global growth of PPA capacity, at 29 percent over the last four years, reflects their efficacy in achieving these goals.
An illustrative example of this trend is Orsted, a renewable energy company that facilitated a PPA with Danfoss, a technology engineering firm. This agreement secured 27 MW of power and offset 31,000 tons of emissions annually.
Enterprises currently face critical energy challenges related to cost and utility engagement. Torbet notes that the quest for clean energy and price stability is driving contemporary purchasing strategies. While PPAs have predominantly been leveraged by large corporations such as Amazon, Microsoft, and Google, the introduction of diverse PPA structures will pave the way for more enterprises to engage in the market, contributing to cleaner energy investments.
The findings from this report spotlight PPAs as a pivotal instrument for shaping the global energy landscape and achieving sustainable energy goals, bridging the gap between business interests and environmental responsibilities.