If you wonder how to source affordable local renewable energy or how to enlarge your pool of off-takers, setting up a corporate PPA may be the answer. Bankability, stable electricity price, renewable energy, a greener brand image… there are many reasons for signing a CPPA.
Corporate Power Purchase agreements are on the rise. In 2019 global corporate PPA volumes reached 19.7GW and 2020 is on its way to hit record-volume(1). However, these renewable electricity supply contracts are still new for many of us and require a deep market knowledge. So we asked our experts from the Strategy & Policy team to explain us what makes such an agreement between a renewable energy producer and a corporate electricity consumer so attractive.
1. Stable electricity price
A CPPA is a long-term contract between a renewable energy installation and a corporate offtaker. It sets out the volume of electricity to supply against a pre-agreed price over a pre-agreed period of time (generally 10-20 years). With its locked-in fixed electricity rates, a power purchase agreement offers long-term price stability and hedging against fuel and electricity price volatility to the consumer. It is a way to get a greater grip and view on the future cost structure of your company.
2. Bankability
In the past decade, lots of renewable energy projects used to benefit from support from governments, feed-in tariffs, feed-in premiums, etc. Now that solar and wind are becoming low-cost energy resources, these subsidies are being removed. This means that developers have to turn to other support mechanisms to finance their projects’ investment and operating costs. In this post-subsidy era, power purchase agreements guarantee a stable long-term income stream for developers, which eases bankability with financial institutions.
3. Renewable energy
Businesses that practice corporate social responsibility focus among other on reducing their environmental footprint. One way to achieve this is to consume green electricity instead of fossil fuel. However, in a regular contract with a utility, you cannot know for sure that the electricity you are sourcing is green. Utilities transport electricity from different generators over the grid to deliver it to the consumer. By purchasing guarantees of origins you are supporting the injection of electricity produced from renewable energy sources into the grid, that is right. But concretely you are consuming a mix of green, grey and old green electricity, like any other consumer.
With a corporate power purchase agreement, you invest into green electricity, benefit from guarantees of origins and do receive green power from a specific renewable energy production unit. By linking your offtake to a specific wind or solar park’s production your sustainability efforts become tangible.
4. Business development
Entering into a corporate power purchase agreement is a great way for developers to enlarge their pool of offtakers to corporates. In addition it opens new opportunities for geographical expansion through trusted partnerships with corporate buyers.
5. Brand & leadership
When you enter into a CPPA as a corporate, renewable energy generation is added to the grid. This direct effect, called additionality, indicates to your shareholders, customers and employees that you are actively supporting the construction of a more sustainable world. Communicating about this achievement, plus about the guarantees of origins of the electricity you are buying, gives your brand a positive image, which is critical to success. Same for power producers who are leading the energy transition by generating renewable electricity. Long live green businesses!
6. Custom-made agreement
The good news about CPPAs is that the open-end of the contract’s design allows for the producer and consumer to set up a tailored agreement. Besides flexibility on the pricing and on the potential partners, you also have plenty of freedom regarding the corporate power purchase agreement structure. From sleeved, virtual, cross-border, multi-technology to multi-buyer and private-wire CPPA, you have got the choice! But how to find the structure that fits your needs?
Building your strategy
Setting up a CPPA is a complex process that requires expertise, a reliable network and a deep market knowledge. At 3E, a pool of energy experts is at your disposal to help you assess your current energy profile, select the right PPA structure and connect with the right partners. Contact our Strategy & Policy team through the form below and they will guide you through the process of sourcing affordable local renewable energy!
Webinar on Post-2020 Decarbonisation Strategies: Corporate Power Purchase Agreements
The content of this article was inspired by the presentation given by Andries De Brouwer, 3E Strategy & Policy consultant, at the event ‘Post-2020 Decarbonisation Strategies: Corporate Power Purchase Agreements’.
During this webinar 3E experts and several external law companies introduced different CPPA structures such as cross-border CPPAs, the role of the Balancing Responsible Party in a CPPA and the legal aspects of pricing of CPPAs in Belgium. The presentations and discussion were followed by a matchmaking session aiming to create new connections between electricity suppliers and corporate offtakers. More than 50 experts from all sectors participated to this event taking place on 5 November 2020.
If you would like to get more information about the topic or would be interested by attending a similar matchmaking session or webinar, please do not hesitate to send us a message through our contact form!
(1) Figures are coming from https://gwec.net/industry-pulse-bloombergnef-global-apac-corporate-ppa-market-progress-and-outlook/
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