Hewlett Packard 112 MW PPA

On July 21st, 2015, Hewlett Packard (HP) announced that it signed a power purchase agreement with SunEdison to generate 112 megawatts of wind power at the South Plains II wind farm. As one of the largest information and communication technology companies in the United States, HP will soon be utilizing a 12 year PPA to cover over 1.5 million square feet of operations in five of its data centers in cities including Houston, Hockley, Plano and Austin. These data center facilities provide support to HP’s own global IT requirements and provide IT services to its customers, contributing to equally large energy requirements.

HP emits a significant amount of carbon dioxide, as seen in 2010 when the company emitted over 2 million tons of carbon dioxide emissions. Each year since 2010, HP’s carbon dioxide emissions have declined with emissions down to 1.7 million tons in 2014. With the new wind power agreement, HP expects to produce enough energy to displace emissions of over 42,600 homes each year. It is projected that the wind farm will avoid “the emission of more than 340,000 tons of carbon dioxide annually” (HP). By entering into a wind energy PPA, the company will be able to decrease greenhouse gas (GHG) emissions efficiently and reach their goals.

South Plains II wind farm will enable HP to not only reach their goal to reduce operational GHG emissions by 20% relative to 2010 emissions by 2020, but also to exceed it earlier than expected. The electricity purchased from SunEdison is large enough that the goal will be reached by the end of 2015, bringing the company ahead of schedule in reducing its GHG emissions. Fortunately for HP, Texas offers many opportunities in renewable energy.

With a total installed capacity of more than 14 gigawatts, Texas is leading the country in wind power generating capacity, equating to 21% of the 66 gigawats installed in the United States. Texas is ideal for organizations looking to expand their renewable energy portfolio. Companies including Facebook, Walmart, Dow Chemical and Microsoft also took advantage of Texas’ significant wind resources and relatively cheap land by purchasing wind power within the same week of HP’s signing. In addition, the new $6.9 billion Competitive Renewable Energy Zone (CREZ) transmission lines are connecting over 186 renewable energy projects across the state, specifically intended to improve wind generation. HP capitalized with wind power booming and five power data centers in the state. One hundred percent of the operations in Texas will soon be powered by renewable energy.

Challenges and Lessons

HP and SunEdison negotiated the deal in order to suit each organization’s goals. It is often a challenge for corporations and developers to decide on the length of the PPA during the procurement process. Kevin Brehm, an associate at the Rocky Mountain Institute stated that, “one general issue that we deal with is developers wanting long-term deals such as 25 years and corporations wanting shorter-term deals.” He said the average length of a “corporate offtake PPA is 20 years”, which tend to be long for most corporations. Conversely, developers looking to make more significant returns on their investments necessarily prefer longer-term PPAs.

Although shorter than the usual length of PPAs, the agreed upon 12-year PPA is long enough to benefit both parties. The contract term is long enough to guarantee revenue for SunEdison and is short enough for HP to feel comfortable about the time-commitment. With a 30% investment tax credit (ITC) set to expire in 2017, developers are eager to sign deals as soon as possible to take advantage of the tax benefits. This will not only benefit the private sector, but also civilian federal agencies unable to gain legal authority to sign long term agreements.

Although HP is taking steps forward in a collective fight against climate change, its decisions are strongly impacted by smart business strategy. With wind energy prices falling and the pressure for companies to fight climate change, it makes sense for companies to producer cleaner energy. “Being able to procure a long-term, stable-price energy source, that’s just good business...” said Kurt Adams, SunEdison’s chief development officer, “...and that’s what we see a lot of corporates focused on these days.”