CPPAs: A route to market solution for renewables in a post-subsidy world?

14 January 2020

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According to BloombergNEF, 121 corporations across 21 countries signed Corporate Power Purchase Agreements (CPPAs) in 2018, amounting to 13.4 GW of clean energy. That’s an increase of over 100 per cent of the amount contracted for in 2017 (6.1 GW). The US remains the dominant market, with large corporates like Apple and Google leading the way in sourcing 100 per cent of their energy usage from renewable sources. However, momentum is building across Europe. Amazon recently entered into a CPPA in Donegal for a new 91.2 MW wind farm, showing that large-scale, subsidy-free renewable energy projects can be economically viable in Ireland.

Although CPPAs gained some traction in Northern Ireland during the ROC regime era, most renewable projects were funded by the traditional offtake PPA solution. ROC supported PPAs were structured as “behind the meter” private wire arrangements, with electricity generation and offtake located in close proximity. However, in the post-subsidy market, renewable energy projects have suffered from a lack of stable revenue stream, combined with market price volatility, which is difficult for funders to model. Developers have therefore had to find innovative financing solutions to secure another viable route to market, resulting in a rise in CPPAs.

So what is a CPPA? Put simply, a CPPA is a long-term contract where the end user business (rather than a licensed electricity supplier) agrees to purchase electricity directly from a renewable generator at an agreed price for a fixed term. Emerging structures include: (i) synthetic (virtual) CPPAs, a purely financial arrangement in which the generator and off-taker enter into a contract for difference and agree a market index price and strike price without any physical flow of electricity; and (ii) sleeved (physical) CPPAs, where energy is physically delivered to the customer, facilitated by a licensed supplier through a back-to-back supply arrangement with the supplier for a fee.

Regardless of the structure, CPPAs offer benefits to both businesses and generators. At a time when businesses are setting sustainability commitments and both the UK and Irish governments have announced ambitious plans for net zero carbon by 2050, CPPAs are set to become part of the energy conversation, helping businesses and governments meet those commitments. CPPAs benefit businesses by providing long-term energy price certainty, cost savings and, depending on the structure of CPPA, demonstrating their contribution to new renewable project development. For developers, CPPAs provide a long-term and certain revenue stream that is essential in securing project finance.

However, CPPAs are not for the faint hearted! They are much more complex than traditional energy supply agreements with a utility provider, often taking 12–18 months to conclude. Engagement and support from a business’ senior management team is critical together with advice from experienced energy experts, from procurement and energy market specialists, right through to legal.

The Energy Team at Carson McDowell has been involved in numerous private wire PPAs in Northern Ireland, acting for generators, funders and off-takers and we are well positioned to guide you through the process of securing a CPPA, explaining the benefits and risks for your business and confidently negotiating an appropriate agreement on your behalf.

NI Water, the largest electricity consumer in Northern Ireland, recently announced a new CPPA with Energia which enables 43 per cent of its electricity needs to come from certified renewable sources, including new projects. In light of the decarbonisation agenda, declining renewable costs and rising power prices we expect to see more activity in the market in this area in the future.

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