STRATEGY

BUSINESS ENVIRONMENT
CORPORATE RENEWABLES PPAs; A NEW FRAMEWORK ON THE ROAD

Corporations all around the world have been showing an increasing interest in sourcing their energy needs through renewable Power Purchase Agreements (PPAs), being wind and solar PV the most preferred technologies.

WHAT IS IT:

A corporate Power Purchase Agreement consists of a long-term contract under which a private enterprise or public institution (other than utilities) agrees to purchase electricity directly from an energy generator, rather than from a traditional supplier, for a pre-agreed price during a pre-agreed period of time, commonly with a term between 10 to 15 years. It differs from the traditional utility PPA in the sense that the off-taker is not an electricity distributor or supplier company, but rather the final consumer.

Early entrants to the corporate renewable PPA market were some of the world’s biggest technological companies, including Google, Facebook or Amazon. However, the market has recently seen a diverse set of companies, including retailers and industrials entering into corporate renewable PPAs and other players as municipalities, universities and hospitals, which are also seizing opportunities.

BENEFITS:

Corporate renewable PPAs provide an opportunity for corporations to comply with their sustainability strategy commitments, by using renewable energy, therefore reducing their carbon footprint and enhancing their reputation and branding. Many private companies are setting themselves challenging energy and sustainability targets and are making these commitments public by joining international initiatives such as RE1001. Corporate renewable PPAs also improve cost predictability, which is especially important in a context of volatile or increasing energy prices, through the ability to set prices for a long-term period and avoid carbon and environmental penalties by complying with current and future regulatory requirements. Following the growing competitiveness of renewable energy technologies, latest PPAs signed around the world offered very attractive and stable prices to the off-takers.

From the renewable generators’ perspective, corporate renewable PPAs bring predictability and visibility on future earnings to renewable generators who would be otherwise exposed to market volatility.

STATUS AND PROSPECTS:

The corporate renewable PPA market has grown significantly in the last years, with nearly 19 GW of deals signed since 2008. According to Bloomberg New Energy Finance, a record of 5.4 GW in corporate renewable PPAs have been closed in 2017.

The U.S. is the preferred market for corporate renewable PPAs, with around 11.3 GW of agreements signed according to Bloomberg, supported by a compatible renewable framework, volatile (and sometimes high) electricity prices, existence of projects with abundant resource and wide availability of expertise in structuring electricity transactions. In Europe, the corporate renewable PPAs market has experienced a slow start but has been growing at a considerable pace in the last five years. Today, more than 3 GW of corporate renewable PPAs have been structured in Europe, being the UK, Scandinavian countries and the Netherlands the largest markets.

EDPR has already a solid experience in partnerships with major companies like Bloomberg, Amazon, Home Depot, General Motors and Philips in the US along with Industrias Peñoles in Mexico.

1. RE100 is a global initiative of influential corporations commited to 100% renewable electricity, working to massively increase demand for – and delivery of – renewable energy