13 Mai 2019

Energy strategies for large energy users

"Rising energy bills and their green commitments trigger large energy users to reconsider how to manage and reduce energy spend. We help them consume less, buy less, and pay less by increasing energy efficiency, with behind-the-meter solutions and new ways to manage risk, and with corporate PPAs."

Ilesh Patel, Partner - Energy, utilities and resources

We are witnessing increased activity from Large Energy Users (LEUs) aimed at addressing rising costs, resilience challenges, and ambitious decarbonisation targets. There are a number of commercial and operational levers that allow LEUs to either pay less, buy less or use less energy.

Corporate Purchase Power Agreements (CPPAs) for example offer a route to market for corporations to purchase renewable energy, manage merchant power risk, trace renewable electricity consumption and distribute risk to counterparties who are best positioned to price it. For renewable generators, direct Corporate PPAs (CPPAs) can offer stable revenues long-term and enable unsubsidised projects.

CPPA deals have grown substantially in recent years, mainly in North America, but also in NW-Europe (Nordics and UK). The initial boom has been driven by large tech corporations, and pioneers such as those in the RE100 initiative who are now close to meeting their renewable energy targets. European CPPA deal volume has also grown substantially in recent years, driven primarily by strong demand from large technology and manufacturing giants in Scandinavia. The UK CPPA market is still immature, but deals with subsidy-free projects are now emerging and there is a growing number of corporates who have set targets to procure a large portion of their energy from renewable sources.

The next wave of CPPA deals will most likely be quite different. We expect high price sensitivity and limited willingness to pay a green premium. The strike price of these CPPAs will need to be on par with the wholesale price of electricity, and contracts will need to be for far shorter durations than the historical average. We expect deals for under ten years, rather than the usual 15+ year norm. This is likely to favour existing renewable projects already in receipt of subsidies, or those rolling off subsidy where investments have already been paid back. New merchant projects will need to demonstrate highly competitive economics in order to be marketable to corporates, and their investments cases will be more complex. This second wave of CPPAs is yet to unlock unsubsidised projects in Europe.

Historically, the primary route to market for renewables generators was through subsidies under long-term contracts that provided stable revenue streams. However, subsidies for technologies that are now reaching scale and maturity are declining worldwide, and business cases for new routes to market are needed. For renewable generators, direct CPPAs can offer stable revenues long-term, and enable unsubsidised projects. Developers’ business development activity in the CPPA market should focus on large corporates who still need to procure renewable energy to meet their green targets, as well as on specific energy-intensive projects with green energy mandates that are in development.