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The race to secure electricity deals for power-hungry data centers has led tech companies to reshape the renewable energy market and face a new challenge: how to ensure their investments actually reduce emissions.
Amazon.com Inc said. AMZN 1.49% on Wednesday plans to announce commitments to purchase 1.5 gigawatts of production capacity from 14 new solar and wind power plants around the world as part of its drive to purchase enough renewable energy to cover all of the company’s activities by 2025.
Technology companies are using their balance sheets to fund solar, wind and other renewable energy projects on an unprecedented scale. In some countries, developers say tech companies’ willingness to spend up front — signing commitments to buy energy at a certain price for long periods — has helped make companies more important than government subsidies as the main driver of renewable energy investment.
Amazon says its new investment will increase its total investment to 85 wind and solar projects globally. Its current projects include this wind farm in Texas. Photo: Jordan Stead/Amazon
Amazon and Alphabet Inc. GOOG 0.43% Google and Facebook Inc. FB 2.03% and Microsoft Corp. MSFT 1.10% are four of the six largest corporate buyers of publicly disclosed renewable energy purchase agreements, and represent 30%, or 25.7 gigawatts, of the cumulative total from companies globally, according to research firm BloombergNEF. Amazon is the largest corporate buyer worldwide, with other major buyers including French oil company TotalEnergies TTE -0.21% SE and AT&T Inc. T -0.52%
“It’s almost like a scramble for clean energy,” said Michael Terrell, Google’s director of energy.
The scale of these investments is putting technology companies under pressure to show that the projects are actually adding new renewable capacity to the power grid rather than absorbing pre-existing supplies. One thorny issue is whether technology companies’ purchases of green energy are replacing energy from carbon-emitting plants or simply increasing power generation to fuel rising global energy consumption. This is important because companies want to tell consumers and investors that they are helping reduce absolute carbon production, not just change it.
“Just because you’re putting a clean electron on the grid doesn’t necessarily mean you’re replacing a carbon-based electron,” said Brian Janos, general manager of energy and renewables at Microsoft. Mr. Janos said Microsoft is now analyzing power grids to determine the locations and times when additional renewable energy production will replace most production from existing fossil-fuel plants to determine where to invest.
The company said Amazon’s latest projects, across seven US states plus Canada, Finland and Spain, have pushed the company’s signed commitments to a total of 10 gigawatts of renewable production. After the new deals, Amazon became the largest ever buyer of clean energy in the United States, according to the Renewable Energy Buyers Alliance, a group of companies that promotes renewable energy purchases. The new factories, which will power Amazon’s cloud services arm, Amazon Web Services, are set to go online in one to three years.
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Nat Sahlström, director of energy at Amazon Web Services, said the company is looking for projects that it can be the first to develop a business model that other companies can follow to help jump-start demand. He added that Amazon only selects projects based on whether its purchasing commitments are pivotal to the projects’ feasibility. “If it were not for our investments in these projects, they would not have gone forward,” he said.
Google, which said it has matched its energy consumption with renewables starting in 2017, says it now has a tougher goal: aligning its energy consumption with renewables not just annually but hourly. This means the company is trying to make sure there is enough carbon-neutral power on the electric grids as they operate at times when power is used, including at night and at times of peak demand.
“I think the evolution is to focus not only on quantity but also on the quality of the sources,” said Mr.
Pushing purchases is driving the exponential rise in data and computer processing usage. In the past decade, increased efficiency has largely offset increased use, in part as companies switch from on-premises computer servers to more efficient cloud service providers, according to the International Energy Agency. But while there is more efficiencies to tap, according to the researchers, it’s not clear for how long, particularly with the advent of 5G networks and as more and more people in the world live and work online.
The Amazon Wind Farm in Texas, one of the company’s first clean energy projects, began operating in 2017. Photo: Jordan Stead/Amazon
“The data center industry is one of the largest consumers of energy worldwide,” said Stefan Jörg Goebel, senior vice president of wind and solar energy for Norwegian energy company Statkraft AS. “They are only reshaping the demand side of the industry from the pure physics of it.”
It is estimated that data centers are responsible for approximately 1% of global electricity use, according to a research paper published in 2020 in the journal Science.
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Big tech companies say they have created in-house teams that work with former deal makers at electrical utilities who can get deals directly with service providers, often eschewing industry middlemen and middlemen who generally handle energy deals. Companies, such as Amazon, often cover a country with operations with orders for energy projects, according to the developers.
“We’ll say, ‘We want to take a look at every potential project that could be under development in a country,'” Amazon’s Sahlström said of his team looking for PPAs, or PPAs.
Developers of wind and solar projects say the demand from big technology has encouraged increased demand for power purchase agreements from other corporate buyers. Because projects require huge upfront investments that take years to offset, banks often won’t fund them — or will offer less favorable terms — unless the projects have a major buyer promising to buy most or all of the production, according to developers and energy financiers.
In Spain, where Amazon has committed to buying power from five solar plants, developers say several major tech companies are looking for new deals.
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“We’re talking to all of them,” Martin Schärrer, who leads such negotiations for renewable energy producer Encavis AG ECV -0.26%, said of the tech companies. Mr. Sharer previously struck a deal with Amazon to sell power from a solar plant outside of Seville, Spain.
Facebook said it reached its goal of buying enough renewable energy to cover its global operations, including data centers, last year, but it continues to strike new energy deals due to its growing energy use. Facebook’s electricity use rose 39% in 2020, according to its annual sustainability report. “It shows that the voluntary targets really drive the market,” said Urvi Parekh, director of renewable energy at Facebook.
Microsoft said it had unannounced power purchase deals that would bring it closer to being the world’s largest green energy buyer. Mr. Janos said his company focuses on shared environmental goals rather than ratings, but added: “We know what ratings are, and believe me, my boss knows what ratings are, and any time a new rating appears, I hear about it.”
Write to Sam Schechner at [email protected]
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