Summary

Amidst the business disruption and economic fallout caused by Brexit and COVID-19, corporates continue to be challenged on actions they take to reduce their carbon footprint.

One way for businesses to manage these pressures and meet “green” targets set by their stakeholders is to procure clean energy through corporate power purchase agreements (PPAs). However, these structures are not without their challenges and their uptake will be impacted by COVID-19 as well as upcoming policy changes.

This article assesses the economic benefits that clean energy corporate PPAs can present to energy buyers (especially in the real estate sector) and how this may be impacted by the regulatory landscape across Europe.

Why Corporate PPAs?

One of the main risks in purchasing green power is uncertainty; not only in terms of intermittent supply, but also pricing. With an ever changing regulatory landscape affecting subsidies across Europe, renewable energy prices have become harder to predict and, in some countries, more expensive than conventional energy sources.

Corporate PPAs have emerged as a way of managing this fiscal uncertainty.

A corporate PPA is a fixed term contract between an electricity generator and a business for the purchase of power at an agreed price without the need for a physical connection. Whilst some corporate buyers will look to enter into clean energy PPAs as part of their ESG (Environmental, Social and Governance) commitments, many will be drawn in by the economic benefits.

When corporate PPAs are structured as long-term arrangements, they guarantee businesses the volume of clean energy that they need at a competitive price. This creates an effective hedge against price volatility and provides corporates with greater certainty that they will be able to meet their long-term debt or financial liabilities.

There is also a growing opportunity for corporates to use PPAs as a flexible clean energy source. New tech platforms like that operated by our partners Zeigo are well suited for organisations looking for the security of long-term fixed prices alongside the flexibility of entering into multiple contracts for smaller volumes of power.

Advantages for the Property Sector

Real estate owners and occupiers are traditionally large consumers of power, so the ability to secure clean energy at pre-agreed rates significantly de-risks the power procurement aspects of managing estates.

Barry Gross, Real Estate Partner at BCLP, believes that property investors have much to benefit from engaging with renewable PPAs:

“Clean energy procurement can help property investors not just meet their sustainability targets, but reduce risk and open up alternative financing terms.  For instance, lenders are starting to offer preferential rates and incentives to borrowers who make their developments more energy efficient. Further, structures such as corporate PPAs help to stimulate competition in supply contract negotiations by offering corporates an alternative to procuring all of their clean energy from one supplier or broker.”

Growing Popularity

Any speculation on the advancement of clean energy corporate PPAs in 2020 must be entirely COVID-19 dependent. However, we expect to see continued dominance in the US which, together with the Nordics, accounts for 80% of the clean energy corporate PPA market globally.

The Nordics, in particular, represent a real growth area for clean energy corporate PPAs, with Sweden on track to reach its 2030 target of 18 TWh renewable energy by 2021. Bloomberg NEF’s first-half of 2020 Corporate Energy Market Outlook report identified that nearly half of the energy market activity came from Sweden, Norway, Finland and Denmark.

In addition, France has the second-largest wind power potential in Europe and its onshore wind market is recognised as one of the most active and attractive markets on the continent. In the UK, the general scaling back of government subsidies, particularly in wind and solar PV, has meant that many generators are turning to corporate PPAs as a way of securing long-term finance for renewable projects. 

Regulatory Changes

2020 was pipped to be a strong year for renewables: EU member states were mandated to implement the EU’s RED II 32% renewable energy target into national legislation by the end of June 2020, and the Brexit-induced policy vacuum was drawing to an end. The UK government announced plans to increase offshore wind capacity to 40GW by 2030 and confirmed that it would be lifting the restrictions on planning and subsidies for new onshore wind farms in the UK.

These regulatory changes were set to make clean energy a high priority across most of Europe, stimulating the growth of clean energy projects and the number of corporate PPAs being negotiated. 

However, COVID-19 has created uncertainty as to the level of engagement governments will have on these and other clean energy policies going forward. The release of the UK Government’s White Paper was due to be released last summer but has been delayed creating uncertainty on the UK’s approach to clean energy corporate PPAs and how this would form part of the UK’s 2050 net-zero commitment.

Conversely, and promisingly, COVID-19 has highlighted the true environmental and ecological benefits that living a low carbon lifestyle can have on our planet. It is, therefore, more important than ever that any short-term solutions adopted to fight the pandemic and its economic impact do not conflict with the medium- and long-term development and climate objectives set out in initiatives such as the UN 2030 Agenda and the Paris Agreement.

Clean energy corporate PPAs will be a crucial mechanism in this process and should form part of any resilient recovery plan.