The might of corporate power purchase agreements

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11th October 2018

The might of corporate power purchase agreements

Curious about Corporate PPAs?

With the industry quickly acclimatising to I-SEM, and the high-level design of the RESS now known, the attention for many developers is shifting towards securing a route to market. To successfully deliver the renewable energy projects Ireland needs, we need creative and innovative financing solutions, and at SSE Airtricity, we believe Corporate Power Purchase Agreements (PPAs) have the potential to play a significant role.

Traditionally developers prefer government-backed support schemes, due to their stable and long-term nature, while Corporate PPAs are often met with scepticism. This view has been justified in light of challenges surrounding divergence in price expectations from both parties, duration and bankability of contracts, and the absence of comparable price data.  Additionally, there has been a lack of development projects ready to progress due to planning and grid access issues. These challenges have resulted in an absence of subsidy-free Corporate PPAs in the market. However, looming international climate and energy targets, and the prospect of a smaller subsidy regime, means that scepticism is quickly being replaced by curiosity.

Opportunities in Ireland 

So why do we believe a Corporate PPA market is achievable in Ireland, when other arguably more advanced and more competitive markets elsewhere in Europe, have seen limited success? The two main requirements for a vibrant Corporate PPA market are an appetite for green energy from locally-based corporates, and a pipeline of fully-consented renewables projects. In relation to the former, Ireland is home to more than 60% of the RE100 signatories, a Climate Group initiative under which the world’s most influential companies commit to achieving 100% renewable power by a target date. On the latter, while there have historically been grid and planning obstacles for renewables projects, these barriers are starting to lift, resulting in the emergence of a strong pipeline of consented projects, including wind and solar, all looking for an effective route to market.

Across Europe and the US, large corporates have entered Corporate PPAs to allow them to directly demonstrate their green credentials. There are fundamentally two ‘standard structures’ used for Corporate PPAs – ‘sleeved’ and ‘virtual/synthetic’ - although there are 26 variations of these two structures used internationally. The market in Ireland has seen the emergence of an additional model, incorporating a ‘supplier-lite’ type structure. This results in a corporate setting up as an energy supplier, taking on all associated administrative and assurance burdens, to provide a clear link between their energy supply and the renewable generation they’re financially supporting. We believe this is unnecessary, and the same result can be achieved through the simpler, internationally-recognised ‘virtual/synthetic’ mentioned above.

Take for example a recent announcement by Facebook, where they have signed a 15-year PPA in Norway for the output of the 294MW Bjerkreim cluster of three wind farms. Under the terms of the deal, Facebook will buy 1,000 GWh of electricity each year to power its Nordic data centres in Denmark and Sweden. While the projects are being developed by Norsk Vind Energi, and ultimately owned by German renewables investor and asset manager Luxcara GmbH, the Swedish state-owned utility Vattenfall AB will have the long-term supply and service agreements from Facebook. Vattenfall will integrate the wind energy into Facebook’s supply agreement, and provide balancing services for the wind farms.

At SSE Airtricity, we believe this is the model best suited to the market in Ireland. Our Regulation and Public Affairs teams have been busy engaging with the relevant authorities on the market structure front, to allow Corporate PPAs of this kind to play their part in Ireland’s renewables revolution. 

Why SSE Airtricity?

  • Large Energy User Customer Base
  • Large PPA Portfolio
  • Understanding of value contribution of all parties to Corporate PPA ecosystem
  • Understanding of Financiers’ Requirements
  • Settlement Capabilities

It’s important to note that Corporate PPAs are not just for the tech giants of this world. Under EU Directive 2014/95, already transposed into Irish law, all corporates with more than 500 employees have to disclose non-financial information including their greenhouse gas emissions and energy consumption. These regulations apply for financial years beginning after 1 August 2017. At SSE Airtricity, we have had a surge of enquiries from businesses in relation to reducing their carbon footprint as responsible corporate citizens.

An aggregate of these kinds of businesses could provide the load required for a Corporate PPA arrangement. Alternatively, a project of the right size could allow a business to go it alone. The market is there, and we believe the solutions are too.

As experts in energy generation and supply, SSE Airtricity is ideally placed to develop bespoke Corporate PPA structures for both developers and large energy users, and our dedicated Energy Markets team is ready and waiting to cater for all needs and expectations.

*As featured in the IWEA Autumn Magazine

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