Large companies are increasingly setting the agenda for the growth of renewable energy across the globe. Purchasing power directly from renewable energy generators under a Corporate Renewable Power Purchase Agreement (Corporate PPA) allows corporate consumers and generators to take advantage of a range of economic, reputational and sustainability benefits. Bird & Bird's lawyers advised on one of the earliest corporate PPAs in 2009 and we have become an experienced advisor on these structures both in the UK and globally.
What are corporate renewable power purchase agreements? & 03
A Corporate PPA allows corporate consumers to purchase power on a long term basis directly from
renewable energy generators without being co-located. This is an alternative to the traditional model where a
utility purchases power from lots of generators, transports it on the electricity grid and then on-supplies
power to consumers.
Global corporates are becoming increasingly pro-active in managing their energy needs: the ability to source
electricity directly from renewable sources, together with achieving long term price certainty, has become a
key business objective. This has led to strong growth in corporate PPAs in recent years, particularly in USA
and LATAM. Major players in the global corporate PPA market to date have been Google, Apple, Amazon,
Unilever, Microsoft and others.
Corporate PPAs have been around in the UK for some time (our lawyers closed a wind corporate PPA with
Sainsbury's in 2009). The rise of solar has triggered further growth. Major corporates now play in the UK
market, including BT, M&S, Nestle, McDonalds, HSBC, Lloyds, and Nationwide.
What are corporate renewable power purchase agreements?
04 & Opportunities and threats
Fix power price - hedge against rising
energy and fluctuating energy prices in
the wholesale markets. Prices have
almost doubled in past 10 years, with
high volatility. 40%-50% rises are
expected in next 15 years1.
Board appetite for the deal â€“ economic
benefits only stack up if the board trusts the
power price forecasts. Board often
unwilling to pay more in short-term for
lower prices in long term.
Power purchase not core business â€“ lack of
know-how/expertise in closing the
Complexity/costs in negotiating the
Achieve sustainability targets and
objective to buy 100% of power from
renewable sources. RE100 is a group of
companies who have pledged to work
towards meeting 100% of their
electricity requirements from renewable
sources, thereby significantly increasing
the demand for renewables.
A utility will still be required in the
contractual chain to provide power when
the generating station is not generating
(renewable power is intermittent) â€“
additional contracts and complexity.
If a project finance lender has financed the
project it may require further security - e.g.
direct agreement with the corporate.
Change in law risks affecting commercial
balance of the deal and triggering re-
negotiation, particularly post Brexit
referendum (removal of LECs a recent
Generator can achieve a stable price over
the long-term as the corporate consumer
often has more appetite to hedge against
forecast rising/fluctuating power price
rises. This is particularly attractive for
projects financed by listed yieldco funds
and project finance.
Creditworthiness/bankability of offtaker â€“
a bigger issue for unsubsidised projects as
the Corporate PPA will represent almost
100% of total project revenues.
Power offtake not core business for the
corporate - if power prices decline will the
corporate default in order to buy their way
out of a bad bargain? Corporate less
concerned about reputational impact as it is
not core business?
Consumer sometimes willing to pay
higher than wholesale prices in the short
term (on the expectation that this will pay
off in the long-term when prices rise and
consumer still has the benefit of the fix).
The deal will need to be bankable â€“ more
complex to get a Corporate PPA approved
1 DECC November 2015
Opportunities and threats
Corporate PPA contract structures & 05
The two leading models for Corporate PPAs are what are known as (a) the "Sleeved" Corporate PPA; and (b)
the "Synthetic" Corporate PPA. The Sleeved Corporate PPA is the contract structure that has mainly been
adopted in Europe, whereas the Synthetic Corporate PPA has been the preferred contract structure in the
A) "Sleeved" Corporate PPA
Generator sells power directly to the consumer and the utility then sleeves the power through the grid and
supplies it to the consumer's site (together with top up power as necessary). We have seen this done through
two PPAs as shown, but it could also be structured with one tripartite agreement.
1 Generator sells power at the meter point to corporate consumer under PPA1.
2 Corporate consumer immediately on-sells power at the meter point to the utility under PPA2. The utility
then "sleeves" the power through the grid and sells power to the corporate consumer at its site. The utility
will perform a balancing service under this PPA2 (renewable energy is intermittent) by topping up the
renewable electricity with extra if needed (for example when the generator is not generating).
3 Renewable benefits can be sold either directly from generator to utility or to corporate consumer.
4 The UK regulatory regime requires a licensed supplier to be involved as a licence is required to put
electricity onto the grid (i.e. transport the power from the generator's site to the consumer's site).
5 The generator can be entirely independent or sometimes the corporate consumer may make an investment
into the generator itself to support the project (and open a new revenue stream in potential dividends).
6 The balancing services are usually provided by a licensed supplier. A new model is emerging whereby the
consumer also sets up a mini utility company and becomes the balancing party itself. Whilst the mini utility
model may save fees, it would obviously require a great deal of investment by the corporate consumer in
setting up a licensed supplier and gaining the expertise required to manage its own energy supply. As far as
we are aware this model has not yet been implemented in the UK, but is being considered by a number of
investors/consumers. Ireland has also used this model.
Corporate PPA contract structures
06 & Corporate PPA contract structures
B) "Synthetic" Corporate PPA
Generator "virtually" sells the renewable electricity that it produces to a corporate consumer for a fixed price.
1 Generator sells renewable electricity to a utility under a standard power purchase agreement at a market
2 Utility continues to sell power to the corporate consumer under a standard electricity supply agreement at
a market price.
3 In parallel to these conventional contracts the generator and the corporate consumer enter into a contract
for difference, option or other financial hedge where they agree a fixed "strike" price for the renewable
electricity produced by the generator.
4 Generator and corporate consumer settle the difference between the fixed strike price and the variable
market price at which the generator sells the renewable electricity it produces to the utility. This serves as a
hedge to the electricity price at which the corporate consumer purchases under its standard electricity
supply contract with the utility.
Which model to choose? & 07
Direct relationship with the generator â€“ easier to show power used is procured from renewable sources,
giving enhanced reputational benefits.
Ability to contract with a generator at build stage â€“ demonstrate "additionally" by adding new green power
to the grid, rather than reallocating existing renewable energy to the corporate.
Power can be sold "virtually" across separate energy markets (e.g. across US states or across countries). This
has been a strong driver for use of synthetic PPAs in the USA (the USA energy market is disaggregated).
Simpler structure â€“ it is a contract for difference/financial hedge. In world of increasingly volatile power
prices we wonder if the synthetic model will begin to emerge in Europe?
Which model to choose?
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