Unleashing Corporate Spending: The potential for corporate sourcing of renewable energy to advance renewables market

June 2020
Written by Sarah Casey, Portfolio Director, Energy Council

At the Energy Capital Leaders Assembly, we heard from some key players in the renewables and PPA market including Zosia Riesner, Director of Power Markets, Europe, Lightsource BP; Dierk Paskert, CEO, Encavis and Luigi Sacco, PPA Originator, Head of Southern Europe, Falck Renewables.

The ‘Off-taker Panel’ was moderated by Malte Jordan, Global Energy Sector Co-Head, Watson Farley & Williams and there was a lively discussion covering:

• What makes a successful corporate PPA
• Business models and procurement strategies that will accelerate the uptake of corporate sourcing
• Assuring the bankability of off-takers
• The main challenges holding back the development of corporate sourcing in the renewable energy market in Europe

Whilst the current context of a global pandemic and struggling economies worldwide has undoubtedly changed the Corporate Power Purchase Agreement (cPPA) market, as it has most industries globally, the main messages our experts presented back in November will continue to ring true as cPPAs remain relevant and important.

Over recent years cPPAs have been shown to be a success story and with government subsidies for renewables slowly receding, cPPA’s will remain an essential tool to support the transition to a low-carbon global economy and for large industrial users to re-boost the market.

What is a Corporate Power Purchase Agreement?

A PPA is a contract between a buyer or off-taker and the power producer for the purchase of electricity at pre-agreed prices for pre-agreed tenure. This includes other terms such as delivery point, beginning date and volume. PPAs have enabled plant developers to secure future incomes and provide assurance to credit lenders and investors that loans can be repaid in the absence of government support schemes.

Traditionally, developers signed a contract with utilities known as ‘utility PPA’, but with the energy market evolving, recent years have seen an increasing number of companies looking to purchase electricity directly from renewable developers – thus ‘corporate PPAs’ were born.

cPPAs are a way that corporates can manage their energy costs and reduce carbon footprint with minimal to no dependence on the utility grid service provider.

cPPAs & Covid-19

The current context is difficult for the still largely immature cPPA market. As energy prices have dropped and lockdowns in many countries remain, there is widespread uncertainty around industrial energy demand in the near future. This has led to sudden standstill in many cPPA negotiations.

At the beginning of the crisis, the market basically grinded to a halt as financiers were worried to sign cPPAs with current energy prices and corporates are reluctant to subscribe to set volumes with the uncertainty around demand post-lockdowns and indeed when lockdowns will cease.

Whilst saying this, in recent weeks the market has showed renewed promise as Swiss energy group Axpo Nordic has secured long-term route-to-market power purchase agreements with UK-based Green Investment Group’s Buheii and Tysvær wind farms in Norway and Voltalia have signed a 20-year contract with fellow French company Auchan, who will buy the electricity generated at two solar plants with a total generation capacity of 61 MW in the south of France.

Blue chip firms have also become more vocal about cPPAs, writing a letter to the European Union urging leaders to stimulate greater investment from the financial sector and enact policies that support the faster rollout cPPAs in the economic recovery package that was unveiled in May. Off-takers who signed the letter include Mars, IKEA & VF Corporation, whose brands include the North Face and Timberland, reinforcing the increasingly important role of corporates in the transition to low-carbon energies.

None the less, the momentum that the market was gaining before this pandemic shows promise for the future. The PPA world can use this quieter period to assess its achievements, and, shortfalls so far, and work out a road map for the future. For a sector that is quite nascent in the market, this rare, almost free time, may show in the long term to be of huge benefit.  

What our experts had to say:

Zosia Riesner, Director of Power Markets, Europe, Lightsource BP

Zosia highlighted the importance of the buy side of corporate PPAs especially in terms of pricing features. She forecasted challenging environments in a subsidy free era, as an increasing number of governments are pulling support for renewables. In order to address this, Zosia suggested that innovation matters as to pricing structure; there is a need to align the buyer and seller and not to be off-market.

Dierk Paskert, CEO, Encavis

Dierk spoke about a need to have standardisation to reduce the timespan to close a PPA (RFQ-until closure about 3 months when it hovers between 6/12 months). He agreed that off-taker risk constitutes a significant a risk and that this needs to priced it in. Dierk called for an understanding of risk priced into the value of the kilowatt.

Luigi Sacco, PPA Originator, Head of Southern Europe, Falck Renewables

Luigi suggested that one of the key issues is PPA bankability. He called for more involvement on the Bank side relating to PPA risk assesssment and pricing, highlighting that there is still much work to be done around counterparty risk and merchant risk analysis.