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23 August 2019 5 min read

Are big corporates the answer to subsidy-free renewables?

Martha Samano

Martha Samano
Consultant | Energy, utilities and resources | London

Why Corporate Power Purchase Agreements (CPPA) are not just a CSR initiative.

Win-win: Corporate Power Purchase Agreements guarantee large energy users cheap, clean power, and guarantee generators long-term revenue certainty in a post-subsidy world.

Against the backdrop of rising and increasingly volatile power prices, large energy users are considering multiple strategies to manage their exposure to electricity costs.

With many corporates committed to meeting publicly-stated sustainability targets, renewable Corporate Power Purchase Agreements (CPPAs) offer the opportunity to reduce energy costs and environmental footprint in one.

Through a CPPA, a company commits to buying power from a generator at a specified price and tenor, with pricing structures and commercial terms varying dependent on the requirements and risk appetite of the corporate.

Deals for new development projects tend to be long term, up to 20 years, securing a revenue stream for the developer and unlocking financing opportunities for renewable projects.

Although CPPAs are not a new concept, especially in the US, the frequency and volumes of deals are growing as they provide an increasingly attractive solution for both the corporate and the developer. Corporates purchased over 13 GW of clean power globally through long term contracts in 2018 – more than twice that of the year before. [1]

Corporate PPAs offer both large energy and owners of generation assets a range of benefits:

Benefits for large energy users:

  • Guaranteed renewable power – Many large corporates have publically-stated renewables targets, for example the RE100 – a group of the world’s most influential companies who have committed to reaching 100% renewable electricity.
  • Reduced power price exposure – PPAs offer large energy users the chance to hedge against increasingly volatile commodity prices, locking in cheap renewable power.
  • Brand – Obtaining significant volumes of renewable power is especially attractive for retail and consumer brands in a world where the end-customer is increasingly concerned about sustainability.

Benefits for generators:

  • Provision of a long-term revenue stream In a post subsidy world, finding a creditworthy offtaker increases the bankability of projects by providing revenue certainty and allowing projects to reach financial close.
  • Pipeline Creating trusted and strategic partnerships with corporates create future opportunities for developers.

Varying priorities from corporates result in different CPPA structures

Corporates have varying priorities when achieving renewable energy ambitions, across renewable traceability, cost savings, and risk appetite (including commodity, regulatory, shape, volume and imbalance risks).

Assessing these criteria against different PPA structures requires buyers to consider future power prices and regulatory change, to benchmark prices through tenders, and ultimately evaluate the suitability of individual partners and projects.

The criteria of many corporates for green power that is additional to the grid (i.e. new capacity directly resulting from that corporate’s involvement) means that businesses are creating investment opportunities for developers.

Corporates can create meaningful change by generating investment opportunities for unsubsidised renewable projects

Enabling unsubsidised renewable projects to reach Final Investment Decision creates a meaningful impact on the broader renewables industry that goes beyond offsetting emissions with green certificates from operational projects. And with tangible economic benefits to the corporate as well, CPPAs are definitely not just a CSR initiative. 

Corporate sourcing of renewable power is a growing trend. Going forward, we expect to see more innovative PPA structures, with developers using PPAs as a route to market, and increasing liquidity in the market for CPPAs in Europe and North America. And with global companies driving the trend, deals in emerging markets are on the rise.

In future blogs we will be exploring corporate PPA markets across various regions, setting out some of the key learnings we’ve gained through first-hand experience.

 

[1] Bloomberg New Energy Finance: Corporate Clean Energy Buying Surged to New Record in 2018