Ambitious sustainability goals? Consider a Corporate Power Purchase Agreement.
Discover how your organization can be at the frontier of the energy transition
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Source: 2030 Scenarios from EU Commission's Impact Assessment for 55% GHG cuts under EU's Green Deal. Graphic featured from EMBER.
Wind and solar growth must triple to reach the EU's 55% emissions target. Corporate renewable power purchase agreements will play an important part in achieving this ambition.
What is a Power Purchase Agreement?
A Power Purchase Agreement, or PPA, is a contractual agreement between two or more entities in which one entity sells its electricity and its associated environmental attributes to another entity.
Power Purchase Agreements may protect against future energy price fluctuations. However, downside exposure must be carefully managed.
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Sellers in Power Purchase Agreement transactions are renewable energy project developers who construct renewable electricity generation assets such as solar or wind farms. You will also hear an energy seller by other names – such as a generator, an asset owner or an investor. Buyers in a Power Purchase Agreement transaction are typically organizations seeking to procure renewable electricity and claim its associated environmental benefits. Offtaker is another name for the energy buyer.
Corporate Power Purchase Agreements are rising in popularity around the world.
Power Purchase Agreements are rising in popularity around the world.
Source: BloombergNEF
In a Corporate Power Purchase Agreement, the corporate buyer receives power and renewable attributes at a fixed rate, the renewable developer receives a stable cash flow to help finance construction.
Who is a cPPA best for?
How does a cPPA work?
cPPAs offer: • Potential financial benefits • Environmental benefits • Marketing benefits
Make a selection to learn more about Corporate Power Purchase Agreements
Corporate Power Purchase Agreements (cPPA) help bring new renewable energy projects to life.
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A corporate Power Purchase Agreement is a contractual agreement between energy buyers and energy sellers. They come together and agree to buy and sell an amount of energy which is or will be generated by a renewable asset. PPAs are usually signed for a long-term period between 10-20 years.
How does a cPPA work? Buyers agree to purchase a renewable energy project's output and its associated Renewable Energy Certificates at a fixed price. This price represents the “guaranteed” price that the renewable energy project developer will receive, no matter what the going rate is for its electricity output during the tenor of the deal. The buyer will engage an energy service provider to manage the physical electricity flows and grid access.
Does my organizations's location matter? Corporate Power Purchase Agreements are location independent, so buyers can aggregate their electricity demand across their nation-wide locations and benefit from associated economies of scale. An energy service provider will manage the physical balancing of production from the project and demand from the buyer. It is preferred to enter a cPPA in the same price zone as where consumption takes place, this is normally a country. Cross-border cPPA's can be beneficial, but add a layer of risk.
What are the economics of a Corporate Power Purchase Agreement? Deciding whether to pursue a Corporate Power Purchase Agreement will depend largely on the economics involved – namely the difference between (forecasted) future energy prices and the agreed-upon fixed corporate PPA price. With improved technology, renewable assets have become cheaper to build – at the same time thermal carbon-emitting power plants still set the future price of electricity. With rising cost for gas, coal and carbon emissions a renewable PPA makes financial sense.
Corporate PPAs can be a hedge against rising retail electric rates In addition to helping you achieve your carbon emissions reduction goals, corporate PPAs help you achieve certainty on your long-term energy costs.
What are the economics of a cPPA?
cPPAs can be a hedge against rising retail electric rates
Does my organization's location matter?
See how Corporate Power Purchase Agreements work
Renewable Energy Installation (Seller)
Energy Service Provider
Corporate Customer (Buyer)
Power + Guarantees of Origin (GOs)
Power (residual demand)
Sleeving Fee
PPA Price
How does a Corporate Power Purchase Agreement Work?
What are some considerations to keep in mind when exploring a Corporate Power Purchase Agreement?
Avoid deals that sound too good to be true Risks associated with renewable energy sourcing are significantly different to risks involved with a conventional electricity supply. When entering a contract with a yet-to-be built renewable project the lowest priced offer might not be offering the best cost-risk-benefit ratio. A lower PPA price almost always implies you as a buyer taking on a larger share of project, volume, price and regulatory risk.
Proper Record Keeping and Accounting is Essential A Corporate Power Purchase Agreement will normally be considered a “normal” supply contract and classified as an executory contract. Based on the contract structure of the PPA contract it may be classified as a lease or a financial instrument – triggering derivate accounting with major implications on company balance sheets and financial performance indicators. Under the EU Regulation on Wholesale Energy Market Integrity and Transparency (REMIT), market participants have an obligation to report wholesale energy market contracts. Energy derivative contracts additionally require transaction reporting according to the European Market Infrastructure Regulation (EMIR).
Deal structure is critical To allocate the risk between buyer and seller, meticulous deal structuring and specific contract language is of the utmost importance. That is why working with an energy expert will help mitigate future unforeseen risks. World Kinect Energy Services has a long and proud tradition of negotiating long-term renewable energy contracts and providing power purchase agreement (PPA) advisory services. Our renewable energy experts have used their extensive global expertise to negotiate over 100 renewable energy power purchase agreements, worldwide.
Avoid deals that sound too good to be true
Deal structure is critical
Carefully consider the risks involved in a cPPA
Proper Record Keeping and Accounting is Essential
Carefully consider the risk involved in a cPPA The price of a Power Price Agreement is derived from underlying electricity market pricing, which fluctuates regularly. Additional penetration of renewable energy production will impact market pricing going forward, and also the output value of your renewable production will be impacted. To successfully negotiate a cPPA, it is important to work with a partner that will help you understand development, operational and electricity market risk associated with renewable energy sourcing.
What are some considerations with a cPPA?
Corporate Power Purchase Agreements are popular with large, energy-intensive organizations with firm sustainability goals.
With a Power Purchase Agreement, the buyer receives and takes title to renewable electricity directly. Electricity prices can fluctuate frequently and substantially. The main characteristic of a power purchase agreement is the agreement to sell X amount of MWh from a renewables project to a buyer of energy at a fixed price. This allows a secure future stream of revenue on the seller's side, the buyer also secures a certain amount of energy at a fixed cost. PPAs address emissions resulting from the purchase of electricity – entering a renewable PPA allow the buyer to make claims about its sourcing of zero-carbon electricity – effectively reducing the buyer's Scope 2 emissions. Power Purchase Agreements have risen in popularity with the world's largest brands and organizations participating. Incorporated across many corporate renewable energy sourcing strategies, PPAs are helping firms achieve their sustainability goals.
What kind of organizations explore Physical PPAs?
Heavy Industry
IT/ Data Centers
Universities
Telecoms
Pharmaceuticals