Chemical makers will compete with data centers for low-carbon energy

Chemical manufacturers are trying to decarbonize their electricity supply by purchasing or generating their own low- carbon energy. But they must increasingly compete with technology firms scooping up fossil-free electricity to power an explosion of new data centers.

Nearly two-thirds of chemical firms have plans to eliminate greenhouse gas emissions from their electricity consumption, according to the consulting firm Accenture. Yuan-Sheng Yu, a chemical industry analyst with Lux Research, says most companies are moving toward those goals with power purchase agreements (PPAs): deals in which they agree to buy electricity from a new renewable energy project. In some cases, these projects are directly connected to chemical plants; in others, the power is sent to the public grid and the PPA purchaser claims that power as part of its electricity mix.

The number of PPAs in the chemical industry has risen quickly over the past several years. Orica, BASF, LyondellBasell Industries, and DSM-Firmenich all signed PPAs in 2022. Air Liquide nearly doubled its purchases of renewable electricity in 2023, mostly through PPAs, according to the firm’s 2023 annual report.

Many tech companies are pursuing similar agreements to power their data centers, making the market for PPA very tight. The chemical firm Sasol hoped to decarbonize electricity for its US operations with PPAs but is now exploring other options because PPA prices have risen. Yu expects that the growing demand for the agreements will incentivize companies to build more renewable energy projects. “As people start fighting over PPA supply, that’s a good thing for the solar and wind industry,” he says.

In its 2023 climate report, BASF calls PPAs a temporary measure and says it ultimately aims to produce its own low-carbon electricity. The firm announced last year that it would acquire part of a huge offshore wind farm and that it’s investigating the possibility of using geothermal power at a site in Germany. Meanwhile, Dow hopes to power a chemical plant in Texas with small nuclear reactors from X-energy, the same company that Amazon is tapping to generate electricity for its data centers.

“A big part of owning these assets . . . is just resilience,” Yu says. “A lot of these companies know that they have to own their own power to guarantee that they’re able to continue to manufacture and operate the entire time.”

Yu says chemical makers and data centers are more interested in nuclear and geothermal power than in solar and wind because nuclear and geothermal can provide the continuous flow of electricity that both industries need. Nuclear and geothermal are especially useful for chemical firms because those energy sources also generate heat that can be deployed in production processes.

But electricity is only a small component of a chemical plant’s carbon emissions. Chemical makers emit far more carbon when they burn fossil fuels to generate heat or through the reactions that create their products.

Chemical firms are making progress on cleaning up their electricity supply, but Yu says it will take decades to eliminate the carbon emissions from high-temperature processes—like cracking—that are difficult to electrify.