Microsoft has announced a new five-year global renewable energy framework agreement with Brookfield Asset Management, which will develop more than 10.5GW of new clean energy capacity. To put this into perspective, just 46GW of corporate PPAs in total were signed globally in 2023; this deal is eight times the size of the biggest PPA deal ever signed.
Microsoft’s latest partnership is valued at over $10 billion and is underscored by the technology giant’s ambition to match 100% of its electricity consumption with zero-carbon energy 100% of the time by 2030. The deal provides Microsoft with access to a pipeline of renewable energy capacity centring on wind and solar energy, and is expected to power almost 2 million homes. Due to its scale, this framework agreement will play a significant role in decarbonizing energy grids in both the US and Europe.
Despite these commitments, Microsoft has recently come under scrutiny due to a staggering 30% increase in emissions announced in its annual sustainability report. These emissions have largely been associated with the construction of the data centres required for AI and cloud computing systems. This highlights the limitations of solutions that address emissions stemming from operations, but not capital investments.
This deal is the latest in a growing trend of large enterprise firms engaging in renewable energy deals to help reduce their emissions from energy consumption. As organizations increasingly prioritize sustainability and carbon reductions, PPAs have become a useful mechanism to help achieve these goals. By committing to purchase the output from these projects, firms like Microsoft can ensure a steady supply of clean energy to satisfy their goals while also providing a suitable credit line for developers to ensure the viability of their projects. As such, PPAs provide buyers with greater confidence in the additionality of their investments than they’d get from buying renewable energy certificates (REC).
This ‘win-win’ scenario has proved incredibly popular in the last five years, with the PPA market growing at a CAGR of 33%. With increased scrutiny on firm’s public decarbonization targets and continued uncertainty around energy prices and security, it is likely that we will see more deals like the one signed by Microsoft in the near future.
A growing number of firms are offering advisory services linked to the PPA market, focused on economic modelling, brokerage and legal provisions. As these services become more readily available, and information on the PPA market becomes more transparent, it will reduce barriers for smaller firms that cannot undertake these deals in-house. This is likely to lead to further growth in the market as the number of PPA deals per year increases.
