Corporate Renewable PPAs on the rise

The market for the corporate renewable energy power purchase agreement is on the rise according to a global report by Baker & McKenzie.

The report, based on a survey of more than 100 senior executives, indicates a number of businesses are now purchasing electricity under long-term renewable PPAs directly from independent generators, as well as investing in generation assets instead of buying power direct from utilities.

Corporate renewable PPAs can bring economic and sustainability-related advantages to the contracting parties, which is propelling the trend across the globe. Almost 90% of surveyed corporates, utilities, IPPs and investors believe more corporates will enter into PPAs in the next 18 months than in the past 18 months.

“The report reveals that PPAs in the global renewable energy sector show no signs of slowing down as companies appreciate the economic and sustainability benefits,” Baker & McKenzie Partner Paul Curnow said.

“This is good news also for the Australian market, as the renewable energy industry here has faced obstacles in recent years with uncertainty over the Renewable Energy Targets (RETs) and project developers obtaining the necessary finance.

“Unlocking the corporate appetite for renewable energy through corporate PPAs opens up some new market opportunities for Australia. It provides new customers for renewable energy projects and enables corporate customers to directly access renewable energy sources of their choice that to date they’ve only been able to access through GreenPower,” Curnow said.

Curnow added that corporate PPAs provide contractual price certainty for projects, enabling financing and ultimately implementation. They provide corporate customers with the benefit of reduced and relatively certain electricity prices and a boost to their green and sustainability profiles.

“The traditional market uncertainties as to how aspects of these projects should be structured, including accessing and transporting electricity to customers, are issues that are now being addressed by key stakeholders including regulators.

“Addressing these factors will continue to help unlock Australia’s renewable energy project pipeline, which includes 1000s of megawatts of new wind and solar projects across the country,” Curnow said.

The Baker & McKenzie report, The rise of corporate PPAs — A new driver for renewables, is available at www.bakermckenzie.com/Australia/CleanEnergyRenewables/.

Report highlights include:

• PPAs to surge globally. Corporate renewable PPAs are especially on the rise in the US, where almost 1.6 GW of renewables capacity was contracted in H1 2015, up from 1.4 GW in 2014 and more than double the 600 MW contracted in 2013. According to the firm’s report, the last three years have seen a significant increase, compared to the total of 650 MW that was contracted between 2008 and 2012.
• Smaller companies enter market. Early entrants into the corporate renewable PPA market were some of the world’s largest technology companies. Recently, the market has seen a diverse set of corporates including retailers, pharmaceuticals and industrials entering into renewable PPAs. “Outside the US and especially in Europe, I am now seeing corporates forming consortia with others to get experience of how they work through power demand,” noted Curnow.
• Economic benefits drive PPA growth. Some 60% of surveyed corporates exploring renewable PPAs cited economic factors as their primary reason for doing so while 30% cited environmental motivations.
• Price fluctuations biggest risk. The benefits of corporate renewable PPAs to offtakers and generators are huge, but careful consideration needs to be given to risks that are unique to these deals. According to the report, power price fluctuations top the list of corporate renewable PPA risks, with additional risks including counterparty credit risk, accounting considerations and regulatory/subsidy issues.
• Synthetic structures favoured. There are numerous ways to structure corporate renewable PPAs. According to the survey,  large corporates appear to prefer synthetic rather than standard PPAs.
• Financing can be challenging. Financing renewable energy projects with corporate PPAs is more challenging than financing projects with standard utility PPAs due to the often lower credit ratings of corporates, more frequent fluctuations in power demand, collateral allocation and other issues.