The announcement last week that Vattenfall will be seeking to offer Corporate PPAs to provide renewable energy from its new windfarm is likely to spark renewed interest in these electricity supply contracts.
What is a Corporate PPA?
Most businesses buy their electricity in the traditional way, which is direct from suppliers such as Scottish Power, SSE, EDF and so on. Corporate PPAs give businesses the opportunity to purchase power directly from a source of renewable generation, be it a windfarm, biomass facility, hydro or solar array.
The power is delivered via the national grid and is not to be confused with a ‘private wire agreement’, under which power is delivered from the renewable source by a dedicated power cable, operating off-grid (or ‘behind the meter’).
The Corporate PPA is a long term agreement (10-20 years) between generator and customer to buy some or all of the electrical output of a renewable generation facility. The PPA guarantees the generator’s revenue stream by setting a fixed price (usually index linked) paid by a customer of good standing.
In the absence of new subsidies renewable developments, in particular onshore wind, are struggling to raise funds based purely on selling into the wholesale markets. By signing up a long-term purchaser developers can unlock capital and business customers can facilitate new green power development.
Why would a business be interested?
Corporate PPAs may be of significant interest to businesses for a variety of reasons:
- Meets key Corporate Social Responsibility and sustainability targets through reduction in carbon emissions
- Establishes or improves green credentials with recognition for leadership and achievements in renewables
- With long-term power prices being uncertain, a PPA gives long term price security, visibility and stability, and also enables hedging of risk on the power markets
- Security of supply and increased resilience
- Enhances branding and customer awareness, and improves investor and employee engagement
What are the challenges?
- Legal and commercial complexities of the deal require a significant commitment of time and effort, a co-operative electricity supplier and, usually, a promoter at board level
- Forward planning window and financial priorities of the business must match the timescales and drivers for the Corporate PPA (10- 20 years)
- Project must be fundable and the business may need to be flexible in its requirements to address bankability
- Getting the price right
- Matching the output of the facility to the needs of the business, although a PPA can introduce opportunities for aggregation across multiple interested businesses
What types of businesses would be interested in a Corporate PPA?
Any high-energy user or commercial/ industrial company with good creditworthiness, an understanding of energy procurement and markets and a long-term decarbonisation or climate change strategy.