Energy is often one of the largest expenditures corporations will make in their operations, whether it be used to support commercial buildings, manufacturing plants, or data centers. Energy use is the single largest operating expense in commercial office buildings, representing approximately one-third of typical operating budgets and accounting for almost 20% of the nation’s annual greenhouse gas emissions. The energy consumed by U.S. manufacturing plants amounts to $180 billion annually and is responsible for almost 30% of all U.S. greenhouse gas emissions. For technology companies with data centers, recurring power cost is their most significant operational cost. The rapid growth of the cloud and our use of the Internet have, in themselves, produced a collective electricity demand that would currently rank in the top six, if compared alongside other countries. When corporations purchase their energy on the open market or rely on fuels with volatile pricing, they are exposed to significant financial risk.
How Does It Work?
There are several ways corporations can take advantage of the hedging qualities of renewable energy products with long-term, fixed pricing.
Traditional Power Purchase Agreement (PPA)
In a traditional power purchase agreement, a customer signs a contract to purchase a specified amount of energy from a renewable energy project for a specified length of time at a specified price. In this case, the customer is purchasing the actual electrons that are being added to the grid by the project. PPAs are generally most attractive to utilities, municipalities, and electric cooperatives.
Structured Power Purchase Agreement (SPPA)
The structured power purchase agreement is a financial contract that provides a long-term price hedge to companies that are exposed to volatile energy prices. It is similar to a PPA but does not include any exchange of physical energy.
Corporations may also capture the hedge benefits of renewable energy through project ownership. Apex can deliver a turnkey facility with ongoing asset management services during the life of the facility.
“We are committed to renewable energy … because it makes good financial sense. We invest in our own renewable energy sources so that we can control our exposure to fluctuating electricity costs and continue providing great value to our customers.”
—Rob Olson, IKEA US