Big Tech’s Plan to Profit From the Rise of Renewables
“Live in the future, then build what’s missing.” That’s tech investor Paul Graham’s formula for profiting from technological disruption. Though this advice is usually applied to software and servers, it looks like big tech companies are also making a big bet on the lessons they’ve learned from living in a renewable energy future.
In recent years, many technology companies have been locking-in long term deals to prepare for a renewable energy future. One way they are doing this is by buying power purchase agreements (PPAs), which are long-term contracts to purchase electricity and Energy Attribute Certificates (RECs) from a renewable energy project. What is the reasoning behind these investments?
Reputation
One is to improve their reputation. As consumers and investors become increasingly concerned about the environmental impact of business, technology companies are under pressure to demonstrate their commitment to sustainability. By investing in renewable energy through PPAs, companies can signal their values and differentiate themselves from their peers. For example, in 2020, Microsoft announced that it had entered into a PPA to purchase 100% renewable energy for its operations in Europe, a move that was widely praised by environmental groups.
Resilience
Another reason is to strengthen the infrastructure that tech companies are especially dependent upon. The technology industry is heavily reliant on the electrical grid, and disruptions or outages can have serious consequences. By investing in renewable energy through PPAs, tech companies can help build a more resilient and reliable energy system, which can help protect their operations from disruptions. For example, in 2021, Google announced that it had entered into a PPA to purchase renewable energy from a wind farm in South Dakota, a move that will help support the expansion of the farm and increase the reliability of the electrical grid in the region.
Resale & Regulation
A third reason is to hedge against future regulation and position themselves to profit from the rise of renewable energy or the possibility of an increase in the cost of electricity. As governments around the world implement policies to reduce greenhouse gas emissions, it is likely that there will be increasing pressure on companies to transition to clean energy. By investing in renewable energy through PPAs, tech companies can not only reduce their own emissions but have also locked in low electricity prices through these long-term deals.
EACs are another key consideration for tech companies investing in renewable energy through PPAs. EACs represent the environmental attributes of renewable energy and can be bought and sold on the open market. As the demand for renewable energy increases, the value of EACs is likely to rise, which could provide an additional financial benefit to tech companies that have invested in them. For example, in 2021, Amazon announced that it had entered into a PPA to purchase renewable energy from a wind farm in Ohio, a move that will also allow the company to sell excess EACs on the open market.
Can You Follow This Strategy?
Historically, retail investors and small businesses have not been able to get access to PPA deals. A recent innovation called the Virtual PPA (vPPA) has made it easier for investors to access EAC forwards without the rest of the terms in a typical PPA, but these are still a very “insider” instrument. At Jasmine, we’re tokenizing EACs so that any investor or business can access them directly on the blockchain, leveling the playing field and making this market much more accessible. We’re also eyeing vPPAs as the next asset to tokenize so that any business can hedge future climate regulations and lock-in a long term EAC price.
Asset prices can go down as well as up and there’s guarantee what the future of climate regulation looks like, but if you’d like to learn more about EACs, PPAs, and other climate assets you can follow us on twitter or join the discussion on our Discord.
