Power Purchase Agreements offer secure renewable energy for corporations
A Low Carbon Future for Business
Corporations influence the growth of renewable energy all over the world, and appetite in the industrial and manufacturing sectors is increasing. As more and more global businesses wish to purchase green energy without the risk of market fluctuations, we can expect to see an increased demand for PPAs over the long-term.
A corporate renewable PPA is a contract between a company (the “corporate buyer” or “off-taker”) and the power producer to purchase electricity at a pre-agreed price, and for a pre-agreed period of time (typically 10 - 12 years). The contract contains the commercial terms: contract length, point of delivery, delivery date/times, volume, price and product.
The electricity sold under a long-term PPA helps to secure long-term cash flows for newly built renewable energy plants, which may be necessary to receive external financing.
As a contractual partner, corporations come into play as buyers who need to meet their sustainability goals and wish to source renewable energy in the long-term at pre-agreed prices.
Thanks to our global track record of 1.4 GW (500 MW of which is already with corporates) of on and off-site renewable PPAs signed, our Energy Solutions team draws on the deep market knowledge and expertise available at the heart of BayWa r.e. with every new partnership it creates.
Could a corporate PPA work for my business?
Power Purchase Agreements come in two main forms – Sleeved and Financial
The action of transferring electricity via utility is typically known as ‘Sleeving’. Businesses (in this case the “end consumer”) have no direct connection to the renewable energy plant, however the asset is based on the same grid network as the off-take point.
A so-called ‘Financial” PPA comes into play when generator and business (as the “end consumer”) are not connected to the same network or provider; instead the generator delivers electricity to its local trader. The business then buys power from the local utility. Conclusively, both generator and business settle the price difference between the wholesale price and the agreed ‘strike price’ on a monthly basis.
A ‘Sleeved’ PPA, is where the renewable energy source and the company purchasing the power are both connected to the same grid.
The renewable electricity is supplied directly to the utility company, which then ‘sleeves’ the power directly to the beneficiary, for a fee. The utility company is responsible for supplying any additional power as and when needed, if the purchased renewable electricity is insufficient to meet the buyer’s needs.
A Financial PPA, (also known as a Virtual or Synthetic PPA), is when the renewable energy source and the buyer are not connected to the same grid.
However, the renewable energy source is able to convey its Renewable Energy Certificates (GOs, i.e. Guarantees of Origin in Europe) to the buyer ‘virtually’, allowing them to essentially purchase the green energy exclusively from that source, despite there being no direct transfer of energy between the two.
In reality, it is a hedge agreement between the two companies – with the seller being assured of contributing substantially to the installation of additional renewable energy assets for a fixed income for its power, and the buyer being assured of growth in the renewable energy market through this indirect purchase. Any fluctuations in the market price are financially settled between the two parties over a fixed period of time.
Cutting Poland’s CO2 with subsidy-free solar and a VPPA
Around 80% of Poland’s energy needs are currently met from coal-fired generation – however there is a huge and growing appetite for renewables, particularly from the commercial and industrial sectors.
These businesses are attracted by the competitiveness of new renewable generation technologies as well as requests for improved green credentials from their stakeholders. With extensive experience in developing large-scale subsidy-free solar projects, BayWa r.e. was keen to be part of the country’s energy transition.