Who are the real energy giants?

Posted 22nd November 2021 | 1272 words | 6 minutes

As renewable energy transforms power markets, the names that have been synonymous with energy for decades may be set to change.

For more than a century, the energy sector has been dominated by supermajors like BP, Shell, ExxonMobil, and Total — carbon to the core, with global empires built on the extraction, refining and delivery of crude oil.

Today a new set of brands is making itself synonymous with energy: silicon-driven tech giants and trailblazers in pharma, manufacturing and beyond who are changing how the world’s power is procured.

Technology companies have already supplanted oil giants on the major stock indices. In the 1980s, big oil represented 25 per cent of the S&P 500’s total market cap and took seven of the Top 10 spots. At the start of 2020, oil & gas companies accounted for just 4.3 per cent — and none of them made the Top 10.

They’ve been pushed down the rankings by tech brands like Apple, Alphabet (Google), Microsoft, and Tesla, who today occupy positions one to eight on the S&P’s influential listing. Now they’re overtaking them on their home turf by making bold commitments to net-zero targets and becoming synonymous with renewable energy.

And while tech took the early lead in the race to become clean energy consumers, other sectors have joined in, driving more renewable investment and strengthening industrial demand for energy sources that reduce or eliminate carbon emissions.

The overall effect on renewable energy prices has been deflationary, thanks in no small part to the surging popularity of Power Purchase Agreements (PPAs). They let large energy consumers (and consortia of smaller ones) buy clean energy directly from the source, lowering costs while supporting more investment in new projects.

PPAs even have a potential multiplier effect as they make it easier for companies to wrap their supply chain partners into agreements and extend their corporate clean energy footprint.

So who are these emerging energy sector influencers, and how are they carving out reputation and presence in a space that, in the past, would have seen them as customers instead of market movers?

Silicon over carbon: The green energy leaders

We know the tech sector is huge and growing faster than any other, with an operating model and products dependent entirely on electricity. As software becomes cloud-first, data centres have emerged as one of the sector’s most significant cost drivers.

So it’s not surprising that cloud companies like Google and Facebook were amongst the first to ink major PPA deals for renewable energy procurement.

As far back as 15, a widely-cited study by Huawei forecast that the tech sector would be responsible for 20 per cent of the world’s electricity consumption by 2030.

That prediction is easy to believe when you consider the rapid proliferation of mobile devices that become more powerful every year, the rise of electric vehicles, and the yearly volume increases we’re seeing in internet traffic growth — a compound rate of 26 per cent (Cisco) each and expected to reach 4.8 zettabytes by the end of next year.

Tech companies are seeing the impact of power on their P&Ls and have led the way in finding new, less volatile, and less expensive ways to procure it.

Describing its renewable energy strategy as ‘an ambitious sustainability moonshot,’ Google is using a blend of innovative technologies and PPAs to move the company from net zero to zero emissions by 2030.

Google’s approach has been to use AI in optimising power management for its global ‘fleet’ of hyperscale data centres while pushing for a power usage effectiveness (PUE) rating of 1, where all electricity consumption is used for useful computation.

They’ve also been an enthusiastic adopter of Power Purchase Agreements, with deals like this one inked in September 2021 with Engie in Germany.

Google signed an earlier deal with Engie’s Belgian division in 2019, a five-year PPA for electricity from offshore wind, and followed it up in 2020 with a similar deal in the Netherlands.

Not to be outdone, Google’s cloud nemesis Amazon pushed past both Google and Facebook in 2020 in terms of the volume of renewable energy procured through PPAs in 2020.

Its power-hungry Amazon Web Services (AWS) division has purchased over 7.5GW of renewable energy to date.

In America, Amazon has signed PPAs with 18 utility-scale wind and solar renewable energy projects for combined sourcing of over 1,600 megawatts (MW) of renewable generation.

On this side of the pond, Amazon is looking at new wind deals for the Kintyre Peninsula project in Scotland. The company has also installed solar PV arrays on more than 60 of its battleship-sized fulfilment centres around the world.

Tech and beyond: Emerging leaders of renewables

While Silicon Valley will continue to play a significant role in renewable energy investment, the sector picture grows more diversified every month.

Manufacturing and technology multinational 3M reached a 50 per cent renewable electricity usage target in 2021, four years ahead of its original timeline.

The company signed its first PPA back in 2016. At the time, 3M was meeting just five per cent of its global electricity demand with renewables. After a series of successes combining onsite generation at its rural plants with wind and solar pricing locked in through Power Purchase Agreements (PPAs), 3M CEO Mike Roman made a 100 per cent renewable consumption commitment in 2019.

In retail, UK food giant Tesco signed a PPA deal in 2020 with renewable energy investor Low Carbon to create three new solar farms that will generate 130GWh of energy annually. Along with additionality for the grid, the deal will support the company’s commitment to 100% renewable electricity consumption by 2030.

French telecom Orange agreed a deal with Total Quadran in 2021 for 100 GWh per year of renewable electricity over a period of 20 years.

And there are many, many more. At Zeigo we’ve seen persistent demand from manufacturing and infrastructure firms, however we see pharma as the next big adopter.

Denmark-based pharma multinational Novo Nordisk, for example, produces all of its products with renewable energy. It’s now moving to green its supply chain, asking more than 60,000 vendors worldwide to make similar commitments to energy sustainability and help the company reduce supply-chain driven emissions by 300,000 tons of CO2 annually, achieving full net-zero operations by 2030.

The company’s journey to 100 per cent renewable energy was fueled by long-term PPA deals like this with Swedish power company Vattenfall for wind farm output, a joint PPA deal with Novo Nordisk’s parent company Novozymes.

Competition and reputation

These companies aren’t outliers. Around the world and across sectors, the use of PPAs to achieve renewable energy objectives is transforming energy markets.

In the US, organic food brands like Clif Bar and Organic Valley are either already fully renewable or are on target to reach that goal by 2022. Traditional food brands such as Kellogg’s and Mars have also got in on the act — albeit at a less ambitious pace. The two companies have committed to 100 per cent renewable energy powered operations by 2050 and 2040.

The rationale for shifting to RE is driven by a mix of factors: reputation, consumer demand, but also by core financial requirements like reducing costs and improving margins.

A study by the IEEEA has found that the more power-intensive a sector is, the more significant the business benefits derived from capping long-term power prices.

With the Levelized cost of electricity (LCOE) generation continuing to fall for renewables, business basics and consumer demand are driving the emergence of a new generation of energy leaders.

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