New Business Solutions to Reduce the CO2 Footprint in Heavy-Emissions Sectors

Table of Contents

Table of Contents

Table of Figures

Table of Appendices

Table of Abbreviations

1 Introduction
1.1 Problem Presentation and Thesis Relevance

2 State of Research
2.1 Frequently Used Methods

3 New Business Solutions
3.1 Power Purchase Agreements
3.1.1 Description of the Business Model
3.1.1.1 Comparison of Different PPA Deal Structures
3.1.2 Contributions and Limitations of the Model
3.1.3 Potential Solutions to the Limitations
3.1.4 Current State of Research, Regularities and Examples
3.1.5 Scalability Potential
3.1.6 Holistic Consideration Including Future Profitability
3.2 Energy Performance Contracting
3.2.1 Description of the Business Model
3.2.2 Typical Process
3.2.3 Contributions and Limitations of the Model
3.2.4 Potential Solutions to the Limitations
3.2.5 Current State of Research, Regularities and Examples
3.2.6 Scalability Potential
3.2.7 Holistic Consideration Including Future Profitability
3.3 Energy-as-a-Service
3.3.1 Description of the Business Solution as Holistic Approach
3.3.2 Contributions, Limitations and Potential Solutions of the Model
3.3.3 Current State of Research, Regularities and Examples
3.3.4 Scalability Potential
3.3.5 Holistic Consideration Including Future Profitability

4 Discussion
4.1 Future Outlook: Most Promising Approach

List of References

Appendices

Abstract

Long-term effects and transformations due to further increasing greenhouse gas emissions will trigger irreversible and severe consequences for humans, their habitat and the nature. Governments will fail to reach the agreed emission reduction goals with their current measures and are consequently dependent on private sector involvement.

This study aims to provide a detailed overview of new business models that reduce the CO2 footprint in heavy-emissions sectors: Power Purchase Agreements, Energy Performance Contracting and Energy-as-a-Service. Various papers, market analysis and companies from multiple industries have been examined. Furthermore, a calculation of the future emissions savings potential for the German and global market is presented for each business model. The findings demonstrate that each analyzed business model is suitable for companies from multiple sectors with particular characteristics. All instruments are providing improved carbon footprints, while the Energy-as-a-Service approach is predicted to reach the most extensive long-term impact. Based on these results, it is highly recommendable for suitable companies to apply at least one of the presented models to achieve emissions savings. For interested corporations, this thesis can serve as a starting point to critically analyze the suitability of the respective business solutions while understanding their future trends and development potentials.

Table of Figures

Figure 1: Impact of PPAs on Global Emissions

Figure 2: Impact of PPAs on German Emissions

Figure 3: Typical Process of an EPC

Figure 4: Impact of EPC on German Emissions

Figure 5: Impact of EPC on Global Emissions

Figure 6: Comparison of Global Market Size EPC and EaaS

Table of Appendices

Appendix 1: On-Site PPA

Appendix 2: Off-Site PPA

Appendix 3: Corporate Renewable Energy Purchase

Appendix 4: Global Corporate PPA Volumes

Appendix 5: Steps for Global PPA Market Calculation

Appendix 6: Global Corporate PPA Volume Prediction

Appendix 7: Steps for German PPA Market Calculation

Appendix 8: Shared Savings

Appendix 9: Guaranteed Savings

Appendix 10: Most Promising Technologies for Reducing Energy Use and Carbon Emissions

Appendix 11: Total Potential for EPC in Public Sector in Germany

Appendix 12: Key Parameters of EPC Projects in Germany

Appendix 13: Steps for German EPC Market Calculation

Appendix 14: Steps for Global EPC Market Calculation

Appendix 15: Global Market Size of ESCO and EPC

Appendix 16: Globally Performed EPC Projects

Appendix 17: Main Players of the EaaS Market

Appendix 18: EaaS Global Market Size Prediction

Appendix 19: Comparison of Each Business Model's Contributions

Appendix 20: Comparison of Each Business Model's Limitations

Table of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

Since 1970, the number of natural catastrophes has tripled with a 90 percent share of weather- related disasters (Environmental Defense Fund, 2019). 130,000 people died as a consequence of one of the nine most severe heat waves since 2000. On average 68,000 people have been killed annually through natural disasters such as floods or tornados (Atkin, 2017). The average temperature of the oceans has risen by approximately 0.13 degrees Celsius per decade over the past 100 years, threatening the ecosystem and subsequently numerous marine species for example through food shortage (Laffoley & Baxter, 2016).

Climate change is significantly influenced by humanity and particularly by its growing emissions, mainly resulting from population growth and economic activities. Even though the first mitigation measures have already been implemented, the annual growth rate of greenhouse gas emissions grew on average by 1.0 gigatonne carbon dioxide equivalent during the years 2000 to 2010, compared to an yearly average increase of 0.4 gigatonne carbon dioxide equivalent during the period of 1970 to 2000 (IPCC WG3, 2014). According to the Climate Change 2014 Synthesis Report, the latest records of anthropogenic emissions of greenhouse gases are the highest ever recorded, resulting in severe damages for humans and nature (IPCC WG1,2,3, 2014). Drastic changes, additional mitigation efforts as well as substantial emission reductions are necessary to prevent dangerous results and impacts of future climate change on human lives (IPCC WG1,2,3, 2014). Not only risks resulting of greenhouse gas emissions, but also other drivers such as increased energy demand will force the government to introduce further mitigation strategies and support new business models that enhance energy efficiency (Peterson, 2009; Federal Ministry for Economic Affairs and Energy, 2014).

On a global level, the Paris Agreement has the purpose of allying nations and improving the global behavior regarding the danger of climate change by making efforts to limit global warming to less than 2 degrees Celsius, aiming to reach 1.5 degrees Celsius (European Commission a, n.d.).

In Germany, the “Energy Concept of the Federal Government” was introduced (2010), defining Germany's main policy targets regarding energy savings. In 2013, the government presented the National Action Plan on Energy Efficiency (NAPE)”, which focuses on measures that can be implemented to improve Germany's energy performance (Hermann & Pluschke, 2016; Bundesministerium fur Wirtschaft und Energie, 2018).

1.1 Problem Presentation and Thesis Relevance

Even though nations started to increase their efforts to reach their agreed climate targets, the UN Environment states that the 2 degrees Celsius target can only be achieved by tripling the current efforts and only by quintupling them, the 1.5 degrees Celsius aim is still realistic (UN Environment, 2018). Several studies support this prediction, stating that most countries will not be able to achieve their individual Paris Agreement goals with their currently implemented mitigation measures (Climate Action Network Europe, 2018; Plumer & Popovich, 2018).

IFC CEO Philippe Le Houerou additionally states that “{t}he private sector holds the key to fight climate change,” as they have “the innovation, the financing, and the tools” (United Nations Climate Change, 2017).

Therefore, a joint effort of the public and private sectors is necessary to reach the targets and fight climate change successfully. Moreover, it is essential to implement the agreed mitigation measures immediately. Delaying reductions will further increase the difficulty to achieve the necessary results (Policy Solutions, n.d.). Business models that enable public organizations and private companies to benefit from engaging in climate-conscious decisions have to be implemented and expanded. To provide the most significant impact possible, these models should promote the use of renewable energy as well as increased energy efficiency.

Contemporary research in this area has to proceed, as some promising business models have already been introduced to the market, however, due to a lack of information, missing government clarity and complex processing, an extensive implementation is still hampered. This thesis shall contribute to the current research by enabling companies, especially those operating within the heavy-emissions sector, to compare different business models - thus providing them with the necessary information to choose the most suitable approach for their needs and preferences. This thesis evaluates the contributions, limitations, scalability potential and future development of three distinct business models that have the potential to reduce companies' carbon footprints. It has to be remarked that the educational value and forecast accuracy of this research is limited due to a lack of publicly available information and data.

2 State of Research

Current research states that “the technologies, policies, and motivation to achieve this reduction exist today; it is a matter of adopting, designing well, and then promptly implementing the right policies” (Policy Solutions, n.d.). Moreover, the prices for renewable electricity decreased, newly constructed buildings have improved energy efficiency levels and the private sector introduces ambitious targets for emission reductions (Policy Solutions, n.d.). These external drivers promote the introduction and expansion of multiple mitigation actions.

Governments in different countries have been introducing various activities to fight climate change (World Resources Institute, 2015). China is currently producing the highest amount of greenhouse gases, but at the same time implemented several measures to improve its negative impact. They introduced the goal to reduce their greenhouse gas emissions per unit of GDP by 60% by 2030. In addition, China established a carbon trading system in 2017, which is the second largest in the world. In comparison, in 2005, the European Union introduced the currently biggest carbon trading system in the world: the European Union Emissions Trading Scheme (EU ETS), in which all 28 EU countries as well as Iceland, Norway and Liechtenstein participate. This trading system covers approximately 75% of the international carbon trading and 45% of greenhouse gas emissions of Europe (European Commission b, n.d.). At the same time, the EU has decoupled their emission reduction aims from economic growth and strives to reduce their current emissions by 80-95% by 2050 compared to 1990 levels (World Resources Institute, 2015).

India has implemented a market-based mechanism to reduce energy consumption, called “Perform, Achieve and Trade,” and also enforced a bill that determines fuel consumption rules for passenger vehicles while simultaneously striving for a twentyfold increase of solar capacity. Nowadays, almost all countries are exercising some form of emission mitigation effort, for example by restoring and reforesting huge territory (e.g. Brazil, Indonesia) or establishing a carbon tax (e.g. Chile) (World Resources Institute, 2015).

2.1 Frequently Used Methods

It is interesting to examine emission trading systems and carbon tax programmes, as they are already widely implemented and often categorized as a solution for rigorous emission reductions. They hold companies accountable and make them pay for the externality resulting from their emissions (Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety, 2017).

Emission trading systems allow just a certain amount of emission permits (allowances) to be distributed within a sector to ensure a maximum limit of emissions possible, thereby securing the predetermined emissions savings target. Companies can then trade those certificates among each other while evaluating the cost and profitability of energy efficiency actions compared to the purchase cost of those certificates (Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety, 2017). Solely in 2018, the combined value of emission trading systems worldwide was estimated to exceed the $34 billion level (Eden, Unger, Acworth, Wilkening, & Haug , 2016). According to the Environmental Defense Fund, the EU ETS system has led to reduced greenhouse gas emissions without any negative effects on the general economy, at minimal cost and is predicted to lead to a emission reduction of 43% by 2030 compared to 2005 (Hanafi & Petsonk, 2012; European Commission b, n.d.).

In theory, those systems lead to the most cost-effective emission mitigation. This is due to the fact that companies, whose mitigation investments are relatively the lowest, are most likely to reduce their emissions the most (Climate Policy Info Hub, n.d.). However, in reality, these systems can become relatively complex and might not always lead to the most cost-effective mitigation strategy. During times of recession, for example, the incentive to invest in mitigation measures is rather low as the price for emission permits is small as well. As a result, investments during these periods could stagnate and lead to more cost-intensive investments in the future (Climate Policy Info Hub, n.d.). Nevertheless, benefits such as an ensured environmental impact, high political feasibility as well as related co-benefits, clearly make emission trading systems an efficient and successful tool (Eden, Unger, Acworth, Wilkening, & Haug , 2016).

Compared to the above approach, a taxation of greenhouse gases adds a determined tax amount on each ton of carbon dioxide emissions. In contrast to emission trading systems, no trading among companies is necessary or possible when a carbon tax has been implemented. The tax amount is usually surcharged on the price of the product, thereby passed on to the consumers who could reduce their demand accordingly (Climate Policy Info Hub, n.d.). The level of the tax rate influences the amount of greenhouse gas emissions, but since consumers' behavior cannot always be precisely estimated, no specific amount of emissions savings can be determined (Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety, 2017). Furthermore, it is challenging to reach a consensus about the tax rate and bases across Europe, as many individual countries are introducing exceptions or deviations. Therefore, the “environmental taxation so far has proven to be a policy instrument with low practical feasibility at the European level” (Climate Policy Info Hub, n.d.).

A further voluntary approach is the so-called crediting mechanism that allows certificates to be obtained by reducing emissions below a previously defined amount. Those certificates are tradeable and governments could, for example, decide to enable companies who are holding these certificates, to use them within an emission trading or carbon tax program (Federal Ministry for Environment, Nature Conservation, Building and Nuclear Safety, 2017).

Even though the mentioned market-based mechanisms are already leading to significant emission mitigation and improved energy efficiency, a further expansion of voluntary win-win business solutions would support countries to reach their predetermined targets. Often, states or communities experience the consequences of climate change directly, which motivates them to act (NASA, 2019). By supporting the following innovative business models, federal states are able to promote and incentivize energy efficiency, independent of national legislations - for example by a favorable infrastructure or particular funding possibilities.

This paper will analyze three innovative business models that provide benefits to all stakeholders, while simultaneously improving energy efficiency or encouraging the use of renewable energy:

1. Power Purchase Agreements
2. Energy Performance Contracting
3. Energy-as-a-Service

3 New Business Solutions

3.1 Power Purchase Agreements

3.1.1 Description of the Business Model

A Power Purchase Agreement (PPA) is a long-term electricity contract between the purchaser (offtaker) and the seller (independent power producer or developer of an electricity project) that ensures the sale of a predetermined amount of energy. The contract thereby specifies the amount of energy, its price, the delivery date as well as the contractual length (World Business Council for Sustainable Development, 2019).

PPAs vary significantly based on personal preferences or deal structures and have a contractual length from less than a year up to more than twenty years (Huneke, Göß, Österreicher, & Dahroug, 2018; World Business Council for Sustainable Development, 2019). By entering a PPA, the purchaser reduces his dependence on heavy fluctuating energy prices and can plan the company's future cash flows better. The seller reduces his risk, improves the predictability of his sales and thus can invest more successfully into new projects and improvements (Huneke, Göß, Österreicher, & Dahroug, 2018). Simultaneously, the seller is responsible for the whole installation, financing and operation of the energy-generating facility (Leung & Bailey, 2018). PPAs currently have the character of a buzzword: Many people are using it in several different contexts with various meanings (Meulemeester, 2018). Historically, PPAs have been used by large companies or municipalities to ensure stable electricity prices and supply (PWC, 2012). In 2008, PPAs were introduced as a business model to sell renewable energy to companies. Nowadays, the contracts are almost exclusively used as a financial procurement tool within the renewable energy sector (PWC, 2012).

This occurs especially in countries, in which renewable energy, as part of the total energy consumption, is legally binding or very appealing due to tax reliefs (Next Kraftwerke, 2019). Customers that want to satisfy their supply of clean energy are entering into contracts with companies that install and operate solar and wind farms, rather than relying on utilities that cannot ensure 100% clean energy (The Economist, 2017).

To sum up, PPAs are often used by companies that want to ensure stable energy prices, increase their usage of renewable energy, ensure that they are the first customers receiving electricity from a specific plant or just want to stabilize their supply (World Bank Group, 2015).

3.1.1.1 Comparison of Different PPA Deal Structures

Several different PPA deal structures are being used, offering suitable solutions for specific individual needs and preferences. A main distinction can be made between corporate and merchant contracts. Corporate PPAs are contracts between the seller and a purchaser, being a directly consuming company. On the contrary, merchant contracts occur between the seller and an electricity trader as purchaser, who either forwards the energy to a specified consumer or sells it to the open energy market (Next Kraftwerke, 2019). Within those two main concepts, several differentiations can be made. First of all, we can differentiate between synthetic and physical PPAs.

Synthetic contracts remove the requirement of physical energy delivery. The seller and purchaser of the energy reach an agreement about the electricity price, but the power producer will not deliver the energy itself. The producer will sell the produced energy to the wholesale market, from which the client then purchases his energy. Thereby, it is clearly not ensured that the consumer buys exactly this energy, but the feed-in of renewable energy into the grid by this certain amount is.

The contracts include a so-called “Contract for Difference,” by which each party commits itself to conditional future financial compensation. If the market price is lower than the predetermined rate, the offtaker has to pay the difference, but if the market price is higher, the seller will need to pay off the resulting difference (Rajavelu, 2018). Synthetic PPAs can therefore be classified as a financial derivative instrument that ensures energy price stability while offering a high degree of freedom and flexibility (Next Kraftwerke, 2019). Due to the elimination of the physical energy delivery, the administrative effort of both parties is significantly reduced, while price stability is still ensured (Next Kraftwerke, 2019).

In contrast to this, physical contracts always include a predetermined volume of energy that will be sold and delivered. The two variations of physical contracts, which differ regarding their energy delivery route, are called On-Site PPA (appendix 1) and Off-Site PPA (appendix 2). On-Site PPAs demand physical proximity as the energy is directly supplied to the purchaser. The generating facility can be located, for example, directly on or close by the business premises of the purchaser. Therefore, this approach is especially suited for companies with large rooftops or plenty of free and suitable space (Schneider Electric, 2017). The photovoltaic energy plants are installed on the property of the company, but it is the energy producer who is responsible for the whole installment, operation and the resulting costs of the plant (Meulemeester, 2018).

The usage of On-Site contracts eliminates fees for grid-based transmission and distribution, thus offering more regional and cleaner energy at highly competitive and often cheaper prices (Meulemeester, 2018). Therefore, such a contract is very well suited for a company which is willing to produce energy on their own premises but does not want to be responsible for the construction and adhering risks, since these are shifted to the energy producing company (Next Kraftwerke, 2019). This approach can be categorized as a corporate PPA because the produced energy is immediately transferred to the consumer and not traded or forwarded by an energy company.

The second variation is the so-called Off-Site PPA. Off-Site PPAs do not include the production of electricity on the company's site, nor do they include direct delivery to the purchaser. In most cases, the predetermined amount of electricity is transferred through a public grid to the customer (Edison energy, n.d.). This approach enables the power producer not only to choose the optimal location for his facilities but also to pursue several Power Purchasing Contracts with multiple clients simultaneously. One disadvantage of Off-Site PPAs is that in most countries all occurring fees for the electricity transmission still have to be paid as public networks are used. Off-site contracts can be either classified as a merchant or corporate design, depending on the delivery process and energy end user.

According to the HCOB Bank, it is likely that physical PPAs are predominantly used in the future, “{h}owever, a certain standardization in the contractual conditions and some flexibility in terms of contractual lifetime and fixed pricing should also be expected in the longer term” (Klinger & Driemeyer, 2019).

The presented concepts are standard contracts. However, in reality, a lot of contracts include deviations such as the elimination of fixed prices, meaning the implementation of a lowest and maximum price limit, (Huneke, Göß, Österreicher, & Dahroug, 2018) or a Take-or-Pay agreement that ensures a basic financial safety for the power producer.

3.1.2 Contributions and Limitations of the Model

The concept of PPAs offers multiple benefits not only to the involved parties, but also to the society, as it leads to reduced carbon footprints (EON, n.d.). PPAs are a tool to increase companies' usage of renewable energy and thereby meeting not only their sustainability goals, but also making the world a better place (The Economist, 2017).

One of the most apparent benefits of a PPA is its increased energy price stability and predictability (Next Kraftwerke, 2019). Energy prices have been volatile in the past decades, and even nowadays, experts do not predict consistent estimates for future energy price development. By using these agreements, companies can therefore, not only often pay lower energy costs compared to the market prices due to prevented fees, but also secure long-term price stability (Meulemeester, 2018).

Further, the power producer is able to predict his future sales volume and thereby also his future financial situation. In most cases, this does not only improve the company's creditworthiness, leading to reduced costs of capital, but also promotes new investments. Especially photovoltaic or wind energy plants are a suitable fit for this approach, as they have very high upfront investments and low operating costs (Next Kraftwerke, 2019).

Moreover, PPAs enable a company to polish up their image as not only greener, but for example also more regional. PPAs work for companies of all sizes, as they offer a very high degree of flexibility and individuality (Next Kraftwerke, 2019).

Unfortunately, PPAs also entail some limitations, such as the long-term duration of the contracts. According to Energy Brainpool, future energy prices are complicated to estimate precisely, but can, to some extent, be secured by hedging with futures (Huneke, Göß, Österreicher, & Dahroug, 2018). Still, thinking ahead for more than six years cannot be financially secured by hedging with futures or other financial instruments. The resulting limitation of PPAs, with a fixed predetermined price for the entire contractual length, is therefore the high-risk factor whether the agreement will be beneficial in terms of increased energy prices or rather detrimental due to wrong predictions and long-term reduced costs.

Additionally, the power offtaker is dependent on the power producer for this long duration. If new business models and innovations are emerging or the customer service of the contracting partner becomes unsatisfactory after some time, the client cannot change the contractor but is bound for the next ten to twenty years.

Moreover, if companies are entering into an Off-Side agreement, the advantage of lower prices compared to the market price might not be given anymore, because the company has to pay the fees and taxes for using the public grid anyhow (Meulemeester, 2018). This might reduce the incentive for companies to purchase renewable energy by the use of a PPA, especially, if the price advantage was the crucial aspect for them.

A further limitation of PPAs is the vulnerability of energy supply on climate and weather conditions (Huneke & Claußner, 2019). Power producers try to precisely predict the quantity produced, but extreme weather conditions and atypically cold or rainy years might provide less energy than anticipated, leading to an incapacity of producers to be able to supply all their clients (Next Kraftwerke, 2019).

One of the main limitations of PPAs is a lack of incentives for companies to reduce their energy consumption. While a transition to greener and more renewable energy is without a doubt very important, further improvements in energy efficiency are needed.

3.1.3 Potential Solutions to the Limitations

Fortunately, there are potential solutions to most of the previously mentioned limitations, that enable companies to optimally benefit from PPAs.

To prevent the high dependence on the provider and the price uncertainty due to the long duration of the contracts, clients could decide to deviate from the typical contractual structure and include price renegotiations at regular intervals.

The next-mentioned limitation, dubiety regarding an energy price advantage when using PPAs, has been confronted by the Brazilian government through incentivizing companies to trade PPAs. They decided to offer companies, who are engaging in an Off-Site PPA with renewable energy, the same structural reductions they would receive when using On-Site PPAs (Meulemeester, 2018).

Germany, for example, introduced the “Netzentgeltmodernisierungsgesetz” (NEMoG) that “aims at lowering grid fees and distributing the remaining costs more fairly” (Global Legal Insights, 2019). Within the next four years, the fees occurring during energy transmission will be equalized across the country (Global Legal Insights, 2019).

The unsecured energy supply due to significant dependence on weather conditions was the next disadvantage of the model. According to Brainpool, a combination of wind and solar energy within a PPA portfolio reduces the consequences of the weather risk (Huneke & ClauBner, 2019). This would presuppose customers to be suited for a PPA portfolio, which eliminates rather small companies and most of the users of On-Site PPAs.

The last mentioned limitation of PPAs was the lacking incentive for companies to improve their energy efficiency. Here, it has to be clarified that the business model does not focus on solving this aspect. It can be classified as a solution to reduce carbon footprints and enable companies to incorporate renewable energy in their business practices.

3.1.4 Current State of Research, Regularities and Examples

At present, PPAs are predominantly used in European countries such as Scandinavia, Great Britain, Spain and the Netherlands (Huneke & Claußner, 2019). In the German market, PPAs cover less than 100 megawatts, which can be mainly explained by the extensive support of renewable energy by the current Feed-in-Tariff scheme “Erneuerbare-Energien-Gesetz” (EEG) (Huneke & Claußner, 2019; Next Kraftwerke, 2019). The renewable energy act was launched in April 2000 and promised operators of renewable energy facilities a predetermined and ensured payment for each kilowatt hour fed to the grid (Gerdes, 2019). At the beginning of 2021, facilities will begin to phase out of this subsidy model and the follow-up financing still has to be ensured (Next Kraftwerke, 2019). According to WindPower, in “2020, 4.4 GW of German onshore wind will have dropped out of the 20-year support system, with the capacity rising to about 16GW by 2025” (Knight, 2018). Companies will have to evaluate whether future operations of the facility are still economically profitable, especially, if additional investments are necessary (Huneke, Göß, Österreicher, & Dahroug, 2018). PPAs can provide solutions for these considerations, by offering long-term protection and security.

According to Simon Currie, new initiatives are emerging that bring companies together and standardize PPA contracts (The Economist, 2017). Additionally, “{t}hey also press for regulatory reform in places such as China and some part of America, where incumbent utilities block PPAs because they fear being disintermediated” (The Economist, 2017).

In America, PPAs are usually regulated by the Federal Energy Regulatory Commission that oversees and approves the usage of PPAs as part of the Energy Policy Act of 2005 and, additionally, offers financing possibilities (Kuhns & Shaw, 2018). The states also have an influence “in the regulatory process both trough agency rule-making and legislative action” (Heibel & Durkay, 2015).

WindEurope CEO Giles Dickson states that “Germany now needs to turn its attention to making sure new wind farms can also sign PPAs. As things stand today, it is legally and administratively too complicated for them to do so. German policy-makers and legislators need to tackle this. PPAs will be only one of several instruments that will support the financing of wind farms. But they're an important instrument, and they need to be available for both existing and new wind farms“ (Wind Europe, 2018).

As a beginning, Mercedes-Benz has just entered the first corporate renewable PPA in Germany with Norway's state-owned Statkraft to reach its target of using exclusively carbon dioxide neutral electricity for all German plants by 2022. According to Dickson, Mercedes-Benz's project “sets an excellent example for other power consumers and other wind farms in Germany that will come off Feed-in-Tariff in 2021” (Jovanovic, 2019).

A heavy-emissions company that is increasingly focusing on the purchase of renewable energy to satisfy the energy demand is Anheuser-Busch, whose electricity expenses account for approximately one-tenth of its total costs (The Economist, 2017). Anheuser-Busch, for example, wants to change the share of renewable energy from 7% to 100% by 2025 with 85% of the energy resulting from PPAs (The Economist, 2017).

Walmart is another company that emits a massive amount of carbon dioxide but aims to operate its business solely with renewable energy while improving its energy efficiency (Walmart, 2016). The first goal is to reach a carbon dioxide emission reduction of 18% until 2025 which is equal to almost three times the amount of California's emissions of one year. From 2005 until now, already 40 million metric tons of carbon dioxide emissions have been avoided by the energy improvements compared to usual operations (Walmart, 2016). For Walmart, PPAs are an essential tool to achieve their goals while purchasing renewable energy: 480 PPA projects within seven different countries, summing up to 2.3 million kilowatt hours of renewable energy, have been initiated by the end of the fiscal year 2017 (Walmart, 2016).

A different prominent example of a PPA is Google. In the past years, Google could not purchase renewable energy from their usual utilities due to regulatory restrictions and did not have sufficient space and opportunities to produce this energy by themselves or on their site (Google, n.d.). Therefore, they decided to engage in a PPA with a power producer located at the same grids they use. In the following years, the prices of renewable energy decreased significantly, leading to elevated demand for PPAs. In 2017, Google reached its goal of using solely renewable energy for their operations and currently are the biggest corporate purchaser of renewable energy with approximately 2.7 gigawatts of which 900 megawatts are purchased through PPAs (appendix 3) (Hill, 2018).

Joseph Kava, Global Vice President at Google, notices that Google's decision to engage in this business model also influenced other companies to follow:

“Since we've started doing our long terms PPAs, we've seen many other technology and traditional companies follow suit, so I believe we're starting to see industry in general realize that this is just not the right thing to do, but it's good business as well” (European platform for corporate renewable energy sourcing, 2019).

3.1.5 Scalability Potential

In 2018, 121 companies within 21 countries purchased 13.4 gigawatts of renewable energy through the use of PPAs compared to 6.1 gigawatts in 2017 (appendix 4) (Bloomberg NEF, 2019). In 2018, the U.S. has been the leading country, participating in 60% of all PPA activities and are very likely to remain the leading market. Yet, according to Preiß, Europe is going to make progress in this sector as well (2019).

Brainpool further states that the disentanglement of financial support and secured payments for renewable energy as a result of the expiration of Feed-in-Tariffs will occur in the next years in Germany, while energy prices are simultaneously increasing (Huneke, Göß, Österreicher, & Dahroug, 2018). Therefore, the usage of PPAs is expected to increase significantly. This argument is also supported by the number of new market participants on a global scale. For example in the United States, 34 new companies entered the PPA market in 2018, accounting for 31% of the whole activity within the U.S. market (Bloomberg NEF, 2019).

However, Brainpool further argues that large energy consumers and energy supply companies, especially in Germany, remain used to shorter dependence durations of up to three years - they still need more time to fully take advantage of PPAs (Huneke, Göß, Österreicher, & Dahroug, 2018). However, innovative municipal utilities, industrial bulk consumers as well as data centers are likely to use PPAs in the future as the approach is in accordance with their interest in a long-term energy supply combined with financial protection (Huneke, Göß, Österreicher, & Dahroug, 2018).

As the examples in the previous part demonstrate, not only industrial companies are taking advantage of PPAs, but also tech companies who are consuming high amounts of energy.

These examples show that using PPAs is not limited to specific industries, the private or public sector. The business model can be implemented on a large-scale, mainly because various contract structures and a high degree of individualization are possible.

Once the Feed-in-Tariffs are expiring, German companies will be forced to adopt innovative business models to ensure their profitability and PPAs are very likely to become a more popular solution.

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