Buying Clean Electricity: How Cities Benefit from Power Purchase Agreements

A growing number of cities are pursuing actions to reduce their carbon footprint. One of the most straightforward ways to do this is by reducing the carbon intensity of electricity, and as a result, cities are expressing increasing interest in renewable electricity. More than 200 mayors in the U.S. have pledged support for community-wide transitions to 100 percent renewable energy by 2035 under the Sierra Club’s Ready for 100 campaign. Many cities have also set an intermediate goal to decarbonize the electricity powering municipal operations. Municipal customers represent a large market; in a 2017 Alliance for a Sustainable Future survey, 71 responding cities—just a fraction of the country’s cities—report spending more than $1.4 billion combined on annual electricity costs.

The ambitious goals for renewable energy adoption raise the question of how city governments will make the transition from traditional fossil fuels. While several options are available to cities seeking a cleaner electricity mix (e.g., on-site renewable energy generation, green tariffs, and community choice aggregation), this brief describes an option increasingly popular among corporations and municipalities: the power purchase agreement (PPA). In 2016, 210 projects in the United States added 7.9 million MWh of renewable electricity in the United States under new PPAs. For context, the entire state of Rhode Island consumed just over 8.5 million MWh of electricity in 2015.

This brief provides an overview of PPAs, introduces important considerations for cities, and provides examples of PPAs used by municipalities. Finally, it offers additional resources that can provide cities with more details and options.

Key Takeaways

  • Cities across the U.S. are increasingly using PPAs as a method of procuring renewable electricity in order to reduce their greenhouse gas emissions footprint.
  • By locking in a long term electricity price, PPAs can help cities avoid potential price fluctuations and streamline budgetary planning.
  • Cities can choose from different types of PPAs and financing structures to find a solution that best helps them attain their sustainability goals.