An Investigation of Power Purchase Agreements for the University of Michigan: A Path to Carbon Neutrality
Jared DeGroat, Grant Dukus, Grant Faber, Catherine Garton, Sophie Lutz, Sarah Lynch, Timothy Spurlin, David Stimson, Rui Zhong
Professor Adam Simon, Department of Earth and Environmental Sciences; Susan Fancy, University of Michigan Energy Institute
Read the report here.
This report explores the use of power purchase agreements (PPAs) as an option for the University of Michigan to increase its usage of renewable energy. PPAs are becoming increasingly popular for large entities such as corporations and universities to increase their usage of renewable energy in easy and profitable ways. Our report starts by outlining the background of the university’s greenhouse gas emission goals and position as a leader in sustainability.
We then discuss why third-party ownership offers benefits to entities who are not specialists in energy development and for whom it would be difficult to purchase renewable electricity generation assets. We explain what PPAs are, how they work, and various financial models we created regarding different types of PPAs that U-M could engage in. This is followed by examples of other institutions, most notably Ohio State University, who are engaging in and benefiting from PPA arrangements. We also discuss U-M’s current and past electricity usage and expenses in order to find the volatility of past electricity prices and show how much price volatility U-M could avoid using a PPA. We calculate the savings U-M could have had if it had signed a similar PPA to the one OSU signed in 2012. We then discuss projections of future electricity prices to demonstrate that locking in electricity prices now with a PPA could lead to substantial savings over time.