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

What should corporate buyers consider when contracting a corporate renewable PPA?

When contracting a corporate renewable PPA, corporate buyers need to carefully consider:

Allocating time and resources to a non-core business area
Understanding power price forecasts
Securing internal approvals
Finding suitable projects
Benchmarking prices via tenders
Clarifying accounting treatment
Engaging a utility to sleeve the corporate PPA (if relevant)
Assessing regulatory restrictions and competition law

The reports below provide a wealth of information on PPAs in different contexts.

Corporate Renewable Power Purchase Agreements: Scaling up globally

This report guides companies through the process of procuring renewable power via PPAs. Nearly half of Fortune 500 companies have targets in renewable energy procurement, energy efficiency or cutting emissions. Procuring renewable power reduces their carbon footprint, showcases leadership and mitigates energy procurement costs and risks. The business case is based on:

Economics - long-term electricity affordability and price visibility;
Sustainability - reduced carbon emissions and progress towards renewables targets; and
Leadership - recognition for renewable electricity achievements and climate leadership.

This report helps companies to navigate barriers and seize the opportunities PPAs offer. It takes a global approach, highlighting countries with potential for corporate renewables such as Chile, Argentina and India.

Innovation in Power Purchase Agreement Structures

This guide helps companies set up innovative and successful corporate renewable PPAs. It is a snapshot of current market practices and an identifier of future growth and innovation.

Continuing innovation in contract terms and conditions is crucial to increasing the number of corporate renewable PPAs globally. This report examines potential innovations to overcome the challenges of:

Volume and shape risk, for example through proxy revenue swaps and energy storage
Managing lender expectations, for example through debt refinancing and buyer’s clubs
Managing complexity and time to complete deals, for example through contract standardisation and creditworthy aggregators to bundle risks

A better understanding of challenges and innovations will accelerate deployment of corporate renewable PPAs in mature markets and assist the successful development in new markets.

IFRS accounting outline for Power Purchase Agreements

This guide helps corporate buyers:

Understand the International Financial Reporting Standards (IFRS) as they relate to corporate PPAs; and
Identify the potential accounting and financial reporting consequences of entering a PPA.

The main tool is a decision tree which illustrates the possible accounting treatments for PPA contracts. The decision tree helps determine what contractual elements must be evaluated in order to establish the most appropriate accounting of a PPA.

How multi-technology PPAs could help companies reduce risk

This paper investigates if and how multi-technology PPAs could offer benefits to developers and/or corporate buyers by reducing some of the risks commonly seen in PPAs.

A multi-technology PPA covers multiple projects of different technologies (such as wind, solar, biomass, geothermal or hydro). The goal of this paper is to support continuous innovation in the way companies purchase renewable power for their operations.

Power Purchase Agreements en Argentina

The report provides guidelines on the regulatory and contractual framework for corporate renewable PPAs in Argentina, in accordance with the new regulations that have been in force since August 2017.

This report targets both the public sector and the private sector, and answers key questions for corporate off-takers, project developers and investors on the new legislation: What are the legal obligations? What are the consequences for corporate buyers who are not fulfilling the required targets? What are the options to fulfil these? What steps are needed to achieve a PPA?

The report is in Spanish with an executive summary in English.

Accelerating corporate procurement of renewable energy in India

This report is an important resource for companies considering corporate renewable PPAs in India. It provides information on contract types, regulatory landscape, market barriers and financing options. It presents options for renewable power procurement and gives recommendations to corporate buyers. This is crucial as the bulk of India’s power generation capacity is yet to be built and a large part of future electricity demand is expected to come from businesses.

This report is for procurement departments within corporate buyers, heads of origination and business development within developers, and regulators and government officials in India who would like to increase their understanding of corporate renewable PPAs.

How to engage with companies leading the PPA movement?

WBCSD’s Corporate Renewable PPA Forum increases the understanding and use of corporate renewable PPAs – globally. Companies participate in our regular webinars and workshops to share market knowledge and insights. Contact us to join the Forum.