Asia-Pacific has installed 7GW of renewable energy in 2022
Wood, an American consulting agency Mackenzie recently pointed out in a research report that as the Asia-Pacific region strives to meet decarbonization goals, soaring fossil fuel and electricity prices have increased the competitiveness of renewable power purchase agreements (PPAs).
Asia-Pacific companies are expected to purchase a record 7GW of renewable energy capacity in 2022. As the renewable energy market recovers from pandemic-related disruptions, this figure is up 80% from 3.9GW in 2021. This growth in demand is driven in large part by the Asia-Pacific region’s commitment to decarbonization goals, while market forces are coordinating to make renewable PPAs increasingly attractive.
The company conducted an in-depth analysis of renewable electricity procurement in the Asia-Pacific region and explored the growth potential of the future market.
What is driving the boom in corporate renewable energy procurement?
Historically, the demand for renewable energy procurement has been driven primarily by decarbonization targets set by governments and businesses themselves. However, price is becoming an increasingly important part of the procurement process.
Since 2019, the cost of electricity per kilowatt hour (LCOE) for utility-scale PV systems, commercial PV systems and onshore wind facilities has decreased by 4.9%, 14.2% and 8.6%, respectively. At the same time, the price of liquefied natural gas has risen 2.4 times, the price of crude oil has more than doubled, and the price of coal has risen more than fourfold. As a result, the cost of generating electricity from renewable energy in 2022 is 46% lower than the average electricity price for industrial end-users.
What is a renewable energy PPA for businesses?
A renewable energy PPA for a business is a direct agreement between a renewable energy developer and a corporate user.
These agreements, which are typically valid for a few to 20 years, allow users to buy electricity from renewable sources directly from developers at an agreed price, rather than from the power company. Power companies often come from a variety of renewable energy sources and fossil fuels.
Users will also receive a certificate of origin for renewable energy that provides proof of carbon offsetting. Renewable energy generation facilities can be built near or on-site (such as rooftop photovoltaic systems), or large-scale renewable energy projects can be built elsewhere.
What is PPA used for?
Many companies are willing to sign up to PPAs because countries around the world are committed to achieving net-zero emissions, so signing PPAs gives companies access to reliable, clean energy electricity with no upfront costs and is operated and maintained by developers.
PV systems dominate corporate renewable energy sourcing in the Asia-Pacific region, with signed PPAs for PV systems accounting for 57% of the total PPAs in the Asia-Pacific region to date. However, since 2020, the number of PPAs for wind power facilities has grown rapidly, and by the first half of 2022, wind power PPAs accounted for 44% of corporate PPAs in the Asia-Pacific region.
In countries around the world, the market share of different energy sources varies greatly. Photovoltaic systems and wind power facilities are equally popular in Australia, accounting for 45% and 43% of the country’s PPA respectively. Photovoltaic systems dominate in India, accounting for 82% of the country’s PPA. In Taiwan, on the contrary, wind power (especially offshore wind) has quickly become the dominant technology in PPAs, accounting for 89% of the total. In Southeast Asia and the rest of East Asia, almost all signed PPAs for photovoltaic systems are signed.
Where are corporate renewable energy PPAs most popular?
Research shows rapid growth in renewable energy projects in countries that offer incentives for off-site energy procurement.
India’s cumulative signed PPA installed capacity leads the Asia-Pacific region with 8.1GW (44%), Australia and Taiwan also saw strong growth. These three countries and regions signed up to 89% of the total.
Southeast Asian countries such as Cambodia, Thailand, Vietnam, Pakistan and the Philippines signed PPAs are all rooftop photovoltaic systems, which have a small market share due to their limited scale.
Who are the major market players?
In the corporate renewable energy PPA market in Asia Pacific, there are three photovoltaic system developers in India, Amp Energy, Ampluss Solar and Cleantech Solar is among the best, but the vast majority of photovoltaic systems are installed in the country.
Large energy users in the industrial, retail and technology sectors are the main customers signing up for renewable energy PPAs. Taiwanese chipmaker TSMC signed a PPA of 2.4GW, accounting for more than 10% of the total PPA in the Asia-Pacific region. In Australia, miners including BHP Billiton and Newcrest derive their electricity primarily from renewable sources. Other users, such as supermarket chains and telecommunications providers, mainly use renewable energy to power their data centers.
What is the potential for further growth?
Although Asia Pacific signed renewable energy PPAs in 2021 with seven times the installed capacity of 2017, the region still accounts for only 15% of the global PPA market. So far, only 29% of the 122 Asia-Pacific companies participating in the RE100 Global Renewable Energy Initiative have signed up to PPAs, leaving a lot of room for further growth in the market.
Given that the prices of liquefied natural gas, coal and crude oil will remain high in the coming years, renewable energy generation will be much cheaper and greener than traditional energy sources. Signing up to PPAs is therefore an easy and relatively inexpensive way for companies to access renewable electricity, but the main obstacle is the lack of regulations to allow renewable energy developers to purchase renewable energy on a large scale in other countries and regions.
Asia-Pacific countries, including China, South Korea and Japan, are gradually relaxing regulatory measures for companies to sign off-site PPAs, which should provide more opportunities in the coming years. Wood, though Mackenzie expects Australia, India and Taiwan to continue to lead future growth.