Finance

What The Hell Is A Gigawatt? Green Energy Renewables And Virtual Power-Purchase Agreements

Although virtual power-purchase agreements can be credited for only a small portion of green energy projects overall, they are becoming more influential every year.

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(Photo by GERARD JULIEN/AFP/Getty Images)

A gigawatt is a measure of power. There are one billion watts in one gigawatt. Technically speaking, it’s what they call in the sciences, “a shitload of power.” It’s enough that when you tell a wild-eyed scientist that it takes 1.21 gigawatts of electricity to send you back home to 1985, he will run around wildly bemoaning the fact that only a bolt of lightning can feasibly generate that kind of power.

Hold your horses though. While in the movies a bolt of lighting might be the only way to generate gigawatts of power, in real life, there are many other ways, including horses. According to the U.S. Department of Energy, one gigawatt is roughly equivalent to the power generated by 1.3 million horses. So, in Back to the Future Part III, Doc and Marty were actually onto something when they first tried to pull the DeLorean up to 88 MPH. I know, I know, powering the flux capacitor and getting the time machine up to speed are two separate problems, I just think it’s fun to realize that they only needed  about 1,572,994 more horses if they had wanted to supplant Mr. Fusion.

Believe it or not, today we have even more sophisticated ways of generating our gigawatts than predestined lightning strikes or millions of pounds of horseflesh. It only takes 431 spinning utility-scale wind turbines, for instance, to generate a gigawatt of electricity, based on the average 2.32-megawatt size of utility-scale wind turbines installed in 2017. Or, you could generate this kind of juice with about 3.125 million standard-sized 320-watt solar panels (that sounds like a lot of solar panels, but keep in mind that it’s much cheaper to produce a couple solar panels than a good workhorse).

It’s these renewables that corporate America, and to a lesser extent corporate Europe, corporate Africa, and the corporate Middle East, are increasingly focused on through the use of complex contracts called virtual power-purchase agreements. Companies are increasingly under investor pressure to turn to greener technologies, and virtual power-purchase agreements are seen as a means to finance green power projects that otherwise might not happen.

How these agreements work is that a customer, typically a business of some sort, signs a virtual power-purchase agreement with a renewable energy generator for power generated from clean sources at a fixed rate, for a fixed term. The “agreement” may actually be a series of agreements facilitated by middlemen called “offtakers,” which are usually big energy trading companies. The offtaker guarantees the renewable energy developer a fixed price for the electricity it produces, paying a refund if the price dips below a predetermined rate. In turn, the offtaker enters into a corresponding agreement with the corporate customer to fix its energy costs at a set price. If the actual costs of the power exceed what was agreed to in the virtual power-purchase agreement, the offtaker will refund the difference to the customer. The customer gets to fix its power costs and boost its green energy credentials by underwriting specific green energy projects, and the energy developer is protected against an unexpected drop in electricity prices. It’s similar to insurance.

A virtual power-purchase agreement should be distinguished from a physical power purchase agreement. The latter allows the customer to actually physically consume the power being produced from a green energy project, whereas the former allows for “virtual” consumption — the actual electrons flowing out of a wind turbine or solar panel enter the wholesale market, but the customer essentially gets credit for them. The advantage of the virtual agreements is that the customers and renewable energy projects do not have to be in the same electrical grid region, which makes green power offsets more available to businesses that are located in comparatively dark, windless places.

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Although virtual power-purchase agreements can be credited for only a small portion of green energy projects overall, they are becoming more influential every year. In 2017, European, Middle Eastern, and African companies inked power-purchase agreements for clean energy projects with a total capacity of just 1.1 gigawatts — not even enough for a lousy one-way trip with the flux capacitor. But last year, that more than doubled, to 2.3 gigawatts. U.S. companies did even better in 2018, with 8.5 gigawatts in new green power-purchase agreements, almost a threefold increase from their 2017 total, led by tech giants like Amazon, Facebook, and Microsoft. Some companies you really wouldn’t expect — like Anheuser-Busch, and even Shell and ExxonMobil — are dipping their toes into the renewable energy market. Sometimes, it seems, even corporations do the right thing.

Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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