‘24/7 PPAs’ to help large energy users in Ireland meet power demands

Existing power demands will likely accelerate with the roll out and use of artificial intelligence (AI). This rapid increase in demand needs to be understood in the context of the emergence of new form of power purchase agreement (PPA)- the ‘24/7 PPA’, in which energy consumption needs are fully met by renewable energy generation.

LEUs and 24/7 PPAs may well be interdependent and pivotal in the Irish power sector and the energy transition more generally.

The Irish energy regulator is due to issue a new grid connection policy statement (101 pages/1.6MB) in relation to LEUs, and that policy will be closely evaluated in the wider economy.

As the typical LEU, data centres are large energy users through the housing of servers that store vast amounts of data and must run continuously to ensure the availability and reliability of services like cloud computing, streaming and social media. The true energy demands of generative AI are emerging with various estimates putting the computational processes involved as between five and eight times more energy intensive than current data centres. Accordingly, pressures build up on sources of power supply and electrical grids.

The constant growth in data generation and parallel growth in demand to process and store that data is attributable, in part at least, to AI – the use of machine learning and large language models. LEUs generally are increasingly demanding constant, reliable green energy supplies. Accordingly, the renewable power sector is responding to this changing demand through new generation capacity and technologies including green gas, hydrogen, storage and demand response.

To meet sustainability goals, many data centres enter into PPAs. Today’s standard renewables PPAs enable new clean generation capacity but typically do not support full-system decarbonisation due to verification of the green energy and timing mismatch between generation and consumption.

 Current renewable PPAs are largely fixed price, pay-as-produced structures, with green benefits typically included as part of the commercial deal. As a well-recognised “green right” - the proof of greenness - guarantees of origin (GoOs) offer proof of the source of energy by creating a unique certificate that represents the environmental attributes of one megawatt-hour (MWh) of supplied power. Ownership of a GoO can be unbundled from the electrons and traded separately. Existing energy and GoO trading systems help LEUs align with their sustainability goals, even if the renewable energy is generated offsite, or in different countries.

 LEUs and PPAs

Data centres and other LEUs enter into PPAs to secure renewable energy to meet their substantial and continuous power needs, while aligning with Ireland’s climate goals outlined inIreland’s Climate Action Plan 2024. By leveraging energy trading and driving demand for PPAs, LEUs have underpinned huge advances in the role of renewables in providing reliable and sustainable energy supplies. This sustained demand for green electricity has placed well-documented demands on national grids but has also promoted the integration of renewables into the power grid.

Typically, an objective of a PPA is to help match annual electricity consumption with renewable energy consumption. While this approach balances overall usage with renewable generation, it does not account for hourly variations in energy demand and supply. The new emerging 24/7 PPA is designed 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. We expect the price of these GoOs to fluctuate hourly, with higher prices during peak hours or times of system stress. 

Achieving 100% hourly coverage with current technology and infrastructure is challenging and expensive. Conversely, this drive for real time verifiable green power will drive demand and take-up in opportunities to monetise grid constraints and optimise grid connections to develop dispatchable flexible power sources and storage assets.

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 RE-100, 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% renewable electricity - 24/7 clean PPAs could help them go even further. Today, RE100 requires matching annual energy purchase volumes to 100% by 2050 at the latest. A new 24/7 label may be beneficial to enable the differentiation and reward of more ambitious players.

Energy tracking and trading

The push for 24/7 PPAs is interdependent with and reflects the need for precise tracking of renewable energy. This involves monitoring energy production and consumption on an hourly basis, in order to verify that the energy used is truly green. Technology such as blockchain and real-time data analytics could be crucial for tracking green electrons. 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.

In parallel to the awaited LEU grid connection policy, the use of 24/7 PPAs will likely facilitate development of storage, private wire connections and more flexible and dispatchable renewable energy assets. Likewise, we expect this will drive the development of new financial instruments and energy trading strategies. Accurate 24/7 tracking of green electrons supports the trading of carbon credits, GoOs and future green derivatives. These instruments are integral to the ability of LEUs to measure and meet their sustainability goals and regulatory requirements.

Mitigating intermittency

24/7 PPAs may well emerge as economic and commercial enablers pillars for co-location, extended battery storage and third-party energy services. LEUs are incentivised to optimise access to available grid and renewable energy. By bridging the gap between stranded / constrained power and users, the costs of intermittency of renewable sources can be mitigated. 

Although the short-term compatibility of LEU energy demands and the roll out of 24/7 PPAs will be determined, in part at least, by grid connection policy, the impact of generative AI will demand multiple technological and regulatory solutions.

In an Irish context, it is expected that this will necessitate permitting private wire connections, behind the meter solutions and new forms of storage and grid solutions. Energy parks are expected to play a significant role in this transition, particularly as data centres increasingly move towards these hubs. These parks can provide integrated solutions that combine renewable energy generation, storage, and advanced grid management, thereby enhancing the resilience and efficiency of energy supply chains.

Co-written by Sarah Greene of Pinsent Masons.