Companies aiming to decarbonise their energy use should consider solar power purchase agreements (PPAs), according to a new report from GlobalData, Power Technology’s parent company. The second edition of the ESG Executive Briefing highlights that solar projects are less capital-intensive than wind and that delays in wind projects are hindering grid decarbonisation efforts.
PPAs serve a dual purpose: they fund renewable projects and secure clean energy for companies once the projects come online. However, they are not without challenges. Projects may not materialise as planned, grid connection delays can occur, and tariffs on Chinese-made equipment add another layer of complexity. While solar and wind dominate the PPA landscape, offshore wind investments have faced setbacks. Companies like Ørsted and bp have encountered construction delays, rising costs, and an uncertain US policy outlook.
The onset of the Covid-19 pandemic in 2020 led to wind project delays, followed by soaring costs due to high inflation in 2022 and 2023. The report outlines that the Trump administration’s hiatus on offshore wind project approvals and the expiration of key tax incentives for renewable development have marked a challenging five-year period for wind energy. Consequently, the relative stability of the solar market is seen as favourable, with major players like bp shifting their renewable energy strategies towards solar.
Carbon offsets, another avenue for companies pursuing sustainability goals, involve purchasing tradable certificates representing one tonne of carbon dioxide either avoided or removed from the atmosphere. The carbon offsets market is estimated to be worth between $1bn and $2bn in 2024, with projections reaching up to $250bn by 2050. However, demand has stalled since 2021 due to scandals involving overstated impacts. Underperforming projects and overly generous crediting have damaged the reputation of the offset market and the companies that purchase offsets, leading to skepticism from national regulators.
GlobalData’s Carbon Offsets report explains that offset quality is becoming increasingly important to buyers. Stricter methodologies for calculating the number of offsets a project can sell have been implemented, and carbon ratings agencies are emerging as arbiters of offset quality. The long-term potential of the offsets market remains strong, as every company and country with a net-zero target will eventually need offsets. Six key factors will determine whether the market reaches its potential: corporate commitment to net-zero targets, the scalability of carbon removal technologies, the success of carbon ratings agencies in raising market standards, advances in monitoring, reporting, and verification systems, the integration of offsets into emissions trading systems, and international agreement on country-to-country offset trading.
The shift towards solar PPAs and the evolving landscape of carbon offsets reflect a broader trend in the energy sector: the need for reliable, scalable, and transparent solutions to meet decarbonisation goals. As companies navigate these challenges, the sector may see a more diversified approach to renewable energy investments, with a greater emphasis on stability and quality. This could drive innovation in project development, grid integration, and carbon accounting, ultimately accelerating the transition to a cleaner energy future.