Cloud Giants Are The Largest Clean Energy Customers — And Now They May Start Making It Themselves

Hyperscalers were the world’s largest buyers of renewable energy in 2021, but how tech giants acquire their clean power may soon change.

By a significant margin, Amazon, Microsoft and Meta bought more renewable energy last year than any other companies — largely to power data centers and other IT infrastructure, according to a report from BloombergNEF.

Experts say the already unprecedented demand for solar and wind power will continue to grow rapidly in the months and years ahead. Yet some analysts predict that the Power Purchase Agreements that the tech giants use to drive the construction of wind and solar farms may soon be a thing of the past and that the world’s largest data center users may soon be buying their own massive energy projects. 

“Mega energy buyers such as global data centre behemoths … will not be able to procure PPAs as corporates did over the last years,” energy analytics firm Pexapark says in its 2022 PPA outlook.

“Those gargantuan green procurement needs are approached differently …procurement on a mere PPA basis is insufficient and equity investments in the underlying PPA assets may be required to secure volumes.” 

Driven by their own carbon reduction pledges, sustainability goals of cloud customers and the likelihood of government regulation, cloud providers and other hyperscalers continue to be the largest users of solar and wind energy around the globe. 

According to BloombergNEF’s data, Amazon is the largest renewables customer for the second year in a row, adding 6.3 gigawatts of clean power through 44 different deals in nine countries. Microsoft was a close second, adding 6.15 gigawatts of wind and solar, with Facebook’s parent Meta a distant third after purchasing 2.2 gigawatts over the past year.

The three hyperscalers ranked ahead of major industrials like BASF and Nestlé, with their energy usage all weighted slightly to solar over wind power. 

Cloud providers and other large corporate energy customers have been able to push the development of new renewable energy projects through Power Purchase Agreements. In these deals, a company like Microsoft or Facebook buys the equivalent of 10 years of energy from a yet-to-be-built wind farm or solar array upfront at a discounted or locked-in rate. This effectively finances the renewable infrastructure’s construction for a utility that otherwise wouldn’t have the liquidity to embark on such a project. 

The past year has seen what many experts are calling a PPA boom led by the need to power data centers. Recently, Facebook signed PPAs to fund wind farms in Utah, Iowa and a number of other markets. Similar deals have led to a renewable energy rush in Georgia and other regions with little political pressure for green energy development. 

“The clean energy portfolios of big tech companies now rival those of the world’s biggest utilities,” said Helen Dewhurst, senior associate at BloombergNEF. “Big tech faces mounting pressure from investors to decarbonize and this is reflected in the steep increase in clean energy volumes purchased. The PPAs inked in previous years pale in comparison to the portfolios announced in 2021.”

While industry insiders say the surging demand for clean energy is only going to increase in the months and years ahead, a new report by energy analytics firm Pexapark predicts that PPAs may not be the industry model for long. According to the report, energy price volatility and a trend toward PPAs becoming more costly for energy providers mean that the largest energy companies may soon have trouble finding willing partners for large purchase agreements. 

Along with shorter-term PPAs, the report anticipates cloud providers and other large clean energy customers opting to buy all or part of renewable energy projects outright. Instead of buying power, Amazon or Microsoft would own its own wind farm or a solar array. 

According to Pexapark, offshore wind projects represent the most likely investments for Amazon, Microsoft and their tech competitors. With the industry’s energy requirements increasing dramatically, they are the only renewables projects that can meet the growing energy needs and scalability requirements of the future internet. 

“The sheer volumes requirement will make those buyers gravitate to the only renewable asset class that can produce equally gargantuan scale volumes of power: offshore wind parks,” the report says.