Corporate renewable power purchase agreements (PPAs)

Many companies are procuring renewable energy as a key part of their sustainability strategy. While reducing power consumption is the first step to lower costs and reduce emissions, companies need to maintain continuous operation. Renewable energy can meet that remaining electricity demand.

Corporate renewable PPAs help companies reduce their environmental footprint and often lower their energy costs.

Corporate renewable PPAs also speed up deployment of renewable energy projects by securing a revenue stream for generated electricity and by easing access to project finance. For utilities and project developers, corporate renewable PPAs provide access to corporate buyers, as an alternative to government-led auctions.

What is a corporate renewable PPA? 

A PPA is a contract between the corporate buyer (off-taker) and the power producer (developer, independent power producer, investor) to purchase electricity at pre-agreed prices for pre-agreed periods. The contract contains the commercial terms of the electricity sale: length, delivery point/date, volume and price. The electricity can be supplied by existing renewable energy assets or new build projects.

Financing requirements mean PPAs for new projects often have strict criteria – for example, a duration covering the debt term. New project deals are typically long-term (10+ years) PPAs, but short-term PPAs or PPAs for existing assets can have a tenor of less than a year. There is a wide variety of pricing structures, including fixed prices and discounts pegged to wholesale prices. 

What are the benefits?

For corporate buyers:

Economics

  • Fixed electricity price or fixed price cap, without upfront capital
  • Visibility and certainty of future electricity costs
  • Hedge against energy price volatility
  • Risk mitigation against cost of carbon
  • No operation & maintenance (O&M) costs; operational risk sits with developer

Sustainability

  • Contributes to Sustainable Development Goal 12 - Ensuring sustainable consumption and production patterns
  • Progress towards renewable energy and carbon reduction targets
  • Regional development bank support in countries that encourage companies to reduce their carbon footprint

Brand and leadership

  • Recognition for renewable electricity achievements

Leverage

  • Partnerships with a small number of reliable, experienced power producers
  • Focus maintained on core business areas
    (versus owning and operating power generation assets)

For developers:

Risk mitigation

  • Lower capital cost through guaranteed purchase by corporate buyer
  • Revenue diversification
  • Stronger investment pipeline through corporate buyer relationships
  • Diversification of payment default risk
    (in multiple-buyer PPAs)

Bankability

  • Stable, long-term income that eases bankability with financial institutions
  • Contracting with creditworthy corporate buyers

Brand

  • Transactions with like-minded companies - effect on stocks
  • Active involvement in the development of a sustainable energy system

Business development

  • Pool of off-takers that creates additional demand
  • Geographical expansion through trusted partnerships with corporate buyers
  • Reduced cost through development of standard terms and conditions