Corporate PPA masterclass: Five key considerations for sourcing renewable energy through CPPAs
Last week, edie delivered a masterclass webinar with Danish renewable energy company Ørsted, covering how corporate Power Purchase Agreements can be utilised by end-user businesses to achieve renewable energy commitments. Here, we round up the key takeaways.
Businesses obtained 13.4GW of clean energy through power purchase agreements (PPAs) in 2018, more than doubling the record set in the previous year. Companies have signed contracts to purchase more than 32GW of clean power since 2008, an amount comparable to the generation capacity of the Netherlands, with 86% of this activity coming since 2015 and more than 40% in 2018 alone.
But confusion about what Corporate Power Purchase Agreements (CPPAs) are in the context of renewable energy, which organisations are best suited to adopting them and what the business benefits of doing so remains.
As CPPAs become a popular tool for businesses to meet their energy needs in a sustainable way, the 45-minute webinar offered a detailed overview of the agreements and the key considerations when adopting them – as well as answering questions from the audience.
Here, edie rounds up the key discussion points.
1) The 30GWh limit
One of the big questions that consistently came up from audience members during the 45-minute webinar was regarding the 30GWh annual energy requirement as a gateway to being able to negotiate a deal with a power company such as Ørsted.
While this is the standard situation for many of the CPPAs that has been signed between businesses, Ørsted's head of UK commodity solution sales Mark Westwood said that they would speak to companies if the demand was less than 30GWh and easy energy requirement would be looked at on a case-by-case basis.
2) PPAs are a ‘long term hedge’
A long-term hedge can be part of a long term energy sourcing strategy or risk strategy – it can also be a mid-term hedge and a short term hedge from a long term vision to an approach incorporating the stock market.
Westwood said the customer benefits of a PPA that “minimise risk over the long term while maximising short term opportunities which delivers an optimised purchasing strategy”.
It creates budget certainty, boosts corporate sustainable responsibility strategies, compliance with schemes such as the RE100 programme.
3) CPPAs can guarantee renewable energy sourcing
The CPPA route guarantees renewable sourced electricity from operational wind farms. It helps reduce customer risk and uncertainty in the marketplace, according to Westwood. Renewable power can be sourced straight from the windfarm ‘as produced’ without any shaping fee.
With Renewable Energy Guarantees Origin (REGO) certification, Westwood explains that “you get the certification scheme that identifies that you are actually buying a CPPA, which has a direct connection to a wind farm. You are physically buying power from a specific source. This allows you to take the generation we make on a regular basis from a specific windfarm”.
4) REGO prices in future are‘unknown’
The prices for green certificates have been forced up as demand for sustainability increases on businesses’ agendas and outstrips current and project global supply, Westwood said.
Overall, REGO prices have risen by 400% in the last three years and can be traded across Europe with prices varying significantly according to local demand and supply.
Westwood also said that with the popularity of schemes like the RE100 has also meant that demand was high with the expectation that prices would be pushed up further in the future.
5) Getting board-level buy-in is key
Northumbrian Water’s Anthony Browne was also on the webinar and spoke at length about its CPPA deal with Ørsted. Energy was its second highest cost after people – and during its public consultation with its business plan, its customers said it was clear they wanted the firm to take a lead on environmental issues and climate change.
“You need to ask yourself when going for a CPPA, are you an attractive customer? Are you exposed to price shocks? Do you have an energy manager who can deliver this for you, as it is not an insignificant amount of work?
“You need to test the market. We got 14 different offers, and being a large utilities company were were in a strong position for procurement. Getting the back office function done early and who the internal stakeholders are can really help.
The big consideration is whether you can get the move signed off, Westwood added. “Getting your board engaged early is really important for getting this kind of deal as otherwise, you could find yourself doing a lot of contractual and technical work only to be shot down at board level”.