Power purchase agreements can help data centre sustainability goals

Data centres are large energy users (LEUs) housing servers which store vast amounts of data and must run continuously to ensure the availability and reliability of services like cloud computing, streaming and social media.

To prevent overheating and maintain optimal performance, data centres use extensive cooling systems, which can accrue a lot of energy consumption. This, alongside the constant and growing demand for data processing and storing, and the rise of AI, leads to data centres requiring renewable energy in order to ensure sustainability.

Today’s standard renewables PPAs enable new clean generation capacity but do not support full system decarbonisation due to temporal mismatch between generation and demand.

Current 100% renewable pay-as-produced PPAs also do not fully hedge price volatility risk for the off-taker. Guarantees of origin (GOOs) offer proof of the source of energy by creating a unique certificate that represent the environmental attributes of one megawatt-hour (MWh) of supplied power. They can be unbundled from the electrons and traded. This system helps LEUs align with their sustainability goals, even if the renewable energy if generated offsite.

LEUs and PPAs

By leveraging energy trading and PPAs, LEUs can secure a reliable and sustainable energy supply, contributing to their environmental goals and supporting the broader transition to renewable energy. This approach not only helps manage the high electricity demand but also promotes the integration of renewable energy sources into the grid. Data centres often enter into PPAs, as this helps them source renewable energy to meet their substantial and continuous power needs, while aligning with Ireland’s climate goals outlined in its Climate Action Plan 2024.  

A PPA matches annual electricity consumption with renewable energy consumption. Conversely, 24/7 PPAs require that every hour of electricity use is matched with renewable energy generation. This involves real-time tracking and verification of energy production and consumption. They align with initiatives like the GHG Protocol and RE100, which advocate for more rigorous tracking of renewable energy consumption. As part of the RE100 global corporate renewable energy initiative, for example, more than 400 companies across 175 markets have pledged to use 100 percent renewable electricity—24/7 clean PPAs could help them go even further. Today, RE100 only requires matching annual energy purchase volumes to 100% by 2050 at the latest. A new 24/7 label would be beneficial to enable the differentiation and reward of more ambitious players.

The policy objective of 24/7 PPAs is to ensure that every hour of electricity consumption is matched with renewable energy generation. This high-bar concept is driving innovation and more sophisticated energy management, such as GOO verification and tracking systems. However, achieving 100% hourly coverage with current technology and infrastructure is challenging and expensive and there are limitations to storage for energy sources such as solar and wind.

Energy tracking and trading

The push for 24/7 PPAs is interdependent with the need for precise tracking of renewable energy. This involves monitoring energy production and consumption on an hourly basis, which is essential for verifying that the energy used is truly green. Advanced technologies like blockchain and real-time data analytics could be crucial for tracking “green electrons”- [LF1] electricity generated from renewable, non-emitting sources such as wind, solar, hydropower, and geothermal energy. These technologies ensure transparency and accuracy in tracking the origin and timing of renewable energy, which is necessary for both regulatory compliance and market trust.

For data centres and other LEUs, the concept of 24/7 PPAs influences energy trading by creating demand for more flexible and reliable renewable energy sources. This drives the development of new financial instruments and trading strategies that can accommodate the variability of renewable energy. Accurate tracking of green electrons supports the trading of carbon credits and GOOs. These instruments are essential for LEUs to meet their sustainability goals and regulatory requirements.

In addition, by combining solar power with extended battery storage and third-party energy services, LEUs can significantly increase their use of renewable energy without the prohibitive costs of a full 24/7 solution. This approach helps manage delivery risks by balancing the intermittency of renewable sources and fosters collaboration among different market participants, making the transition to more sustainable energy practices smoother and more economically viable.

Data centres and renewable energy integration

Microsoft, Google and Amazon, who are behind some of the world’s largest data centre complexes, have been investing in wind and solar energy to meet sustainability targets.

Many technology companies operate data centres, most are members of the RE100 corporate renewable energy initiative and have made sustainability commitments. While there is no requirement in Ireland for data centres to enter into PPAs, it is happening nonetheless. For example, Bord na Móna - a semi-state company - is developing an Eco Energy Park in the midlands, with Amazon Web Services, a cloud subsidiary of Amazon, to develop a data centre powered by wind and solar, subject to regulatory planning and consent.

Integrating energy storage solutions, such as battery systems, can help data centres manage the intermittency of renewable energy sources balancing the increasing need for electric power with sustainability requirements.

Energy storage allows LEUs to store excess renewable energy generated during peak production times and use it during periods of high demand or low renewable energy generation. This not only ensures a steady supply of energy but also enhances the resilience and reliability of data centre operations.

The complexity of achieving 24/7 PPAs remains daunting for many energy consumers. Without the appropriate strategy, partnerships, and tools in place, some LEUs may defer clean power commitments. The lack of flexible technologies which facilitate energy storage, such as large-scale storage and hydrogen, is a key enabler in reducing the costs at high levels of matching, as they derisk investment.

A combination of renewables and storage creates dispatchable clean power, a highly desirable commodity for corporates looking to reduce greenhouse gas emissions.

Co-written by Sarah Greene of Pinsent Masons.