Amazon says it has backed more than 500 renewable projects that generate 77,000 GWh a year, which it describes as the largest corporate clean-power portfolio in the world. Microsoft, Google and Meta are buying too. The vehicle in nearly every case is the power purchase agreement, or PPA, and the data center industry is finding the deals harder to sign than they used to be.
The appetite is easy to explain. The International Energy Agency says global internet traffic has jumped 20-fold since 2010, and energy use at large data centers has grown 20 to 40 percent a year since 2020. With AI adoption accelerating, data center power demand is expected to rise by 200TWh a year between 2023 and 2030. Operators with net zero targets need clean supply, and PPAs let them pay for new wind and solar generation to offset the fossil-fuelled power they draw.
Bigger deals, tougher terms
A large data center can need upwards of 100MW. PPAs in the sector often cover 100 to 200MW or more. Amazon’s agreements with Iberdrola for two German offshore wind farms, the 476MW Baltic Eagle and the 300MW Windanker, will give it 1.1TWh a year. It has since signed more deals for Iberdrola projects in Spain and Portugal.
Buyers no longer hold the stronger hand. Tariffs, supply chain disruption and more competition have pushed prices up, and the market now favors sellers.
Aaron Binkley, VP of ESG at Digital Realty, has watched the terms lengthen. “You used to see shorter-term deals, like ten or 12 years, when the market was more favorable to buyers,” he said. “Now, terms of 15 to 20 years are much more common as developers have less flexibility to offer shorter contracts.” Microsoft’s 323MW deal for Shell’s Witznitz Energy Park, signed in September 2023, runs 15 years. Established utilities such as EDP, EDF, AES, Clearway and Dominion supply most of the sector’s contracts.
Some buyers are skipping the middleman. Amazon signed its first PPA for a brownfield site, turning a former coal mine in Maryland into a solar farm. In May 2023 Microsoft entered a long-term corporate PPA with SSE Renewables and FuturEnergy Ireland for the Lenalea Wind Farm in Ireland.
Where the power really comes from
Andrew Webber, CEO of Digital Power Optimization, argues that many PPAs do not deliver what the label suggests. “Many data centers use virtual PPAs (VPPAs) to buy wind or solar power, but the actual energy used often comes from fossil fuels, as the wind or solar energy is generated far from the facility,” he said.
His company’s answer is to put data centers beside stranded renewable projects in the US. Webber says that helps the producer by smoothing out low or negative pricing. Building near an existing wind or solar asset makes sense, he says, “especially in remote areas where land and substations are available, as long as fiber can be run in at a reasonable cost.” Adding solar to a data center already built is harder, since there is often too little land nearby and transmission is a problem even when there is.
Webber does not want PPAs dropped. But he says there “isn’t one right solution” and that the answer is a mix of renewable assets, government action and even nuclear.
Looking past wind and solar
Wind and solar are intermittent, and data centers need steady supply. Some operators have turned to geothermal and hydropower. Microsoft signed a 10-year PPA in May 2023 for geothermal energy for its New Zealand data centers. Those sources are tied to particular regions, which is one reason data centers have clustered in places like the Nordics.
Small modular nuclear reactors are the other option under discussion. Their developers say they can beat renewables on cost, though the technology has not reached the market. Google has signed a 500MW supply agreement with Kairos Power. Kairos CEO Mike Laufer said Google’s decision to be a first mover “showcases the agility of data center operators to recognize the need for innovative, reliable power sources.”
Delays on the supply side add to the pressure. Rules differ from region to region, and many permitted renewable projects wait 5 to 10 years before they start operating. “The permitting and interconnection process has become a critical bottleneck,” Binkley said.
