The Rise of Corporate PPAs in 2018
December 12, 2018
Large energy users globally are seeking ways to reduce their carbon footprint and manage energy costs. Corporates are making commitments to move a proportion or all of their demand to renewable energy as an economic solution to reduce their environmental footprint.
The move towards renewable energy purchasing, initially led by large tech firms in the US, is now becoming a common strategy among international and domestic industry.
Two leading tech companies have reached their target of 100% renewable electricity by 2018. Apple and Google achieved this through a mix of onsite and offsite power purchase agreements (PPA) across their global operations. Both companies signed their first renewable energy PPAs back in 2010/11 and have since facilitated 1000s of MWs of new build aka additional renewable energy projects. There is a significant amount of Corporate PPA experience from these and other market leaders that can be brought to UK and Irish companies working on their own renewable energy goals.
Previous UK Corporate PPAs were facilitated by projects receiving government support under the Renewable Obligation (ROs) government support scheme. Almost all CPPAs in the UK have used a physical contracting structure, requiring energy users to consider how the generation and their demand would interact with the market. Some PPA structures which are common in the US, such as a virtual PPA or club PPAs, are yet to be seen in the UK and may help to make offsite PPAs more accessible to a wider number of energy users.
Virtual PPAs, a financial agreement as opposed to physical power contracting, allows energy users to more readily combine demand from a number of facilities or across a number of markets. Club PPA structures, commonly seen in Australia and the US, offer a group of energy users the ability to combine their demand, increase their buying power and share the risk.
An increase in demand for PPAs from corporates and the growth in networks, will lend to increased learnings and innovation on both sides of the PPA contract. A growing number of companies are joining groups like RE100, “a collaborative, global initiative uniting more than 100 influential businesses committed to 100% renewable electricity.” RE100 is one of the organisations behind the Re-Source Platform, a European initiative bringing together clean energy buyers and suppliers to share knowledge, develop their strategy and make the first steps in renewable energy power purchase agreements.
To date, corporate PPA commitments have been driven by global companies moving towards 100% renewables, but there is now a secondary tier of large domestic businesses that are starting to see both the commercial and environmental benefits of a PPA. The Neo Network, a community aimed at accelerating renewable energy procurement, notes a significant increase in membership from companies in the manufacturing sector. Members cover a broad spectrum of industries and a rough estimate by industry is;
Pharma & Healthcare 10%
Financial Services 5%
Consumer Goods 8%
According to the Neo Network, they have experienced over 50% growth in corporate members either headquartered or with sites in Europe this year. Many corporates are looking towards 2020 sustainability targets and understand they need to start their PPA journey today to achieve these goals.
So far 2018 has been a significant year of PPA developments with the first unsubsidised PPA signed in the UK. In May, the Energiekontor UK corporate PPA presented a market first. The 8.2 MW extension of the Withernwick II wind farm in the East Riding of Yorkshire reached financial close with a corporate PPA partner agreeing to offtake the energy from the extension. The corporate PPA partner has not been named at this stage.
Unsubsidised solar projects are also beginning to appear across the UK with a number of behind the meter / private wire projects in development. Westcott Venture Park plans to install a 15 MW + solar farm covering 76 acres on site at the business park with the provision to add battery storage at a later date. The park currently has a 1.6 MWp solar project installed in 2011.
Further afield, in August 2018, Mercedes-Benz signed a PPA with a 45 MW wind farm in Poland. The Taczalin wind farm has been operational since 2013 and electricity generated will meet the demand of Mercedes-Benz manufacturing facility 10km from the farm.
WindEurope CEO Giles Dickson said: “This is a double first. The first corporate renewable PPA deal in the automotive sector and the first major PPA in Poland.”
The European PPA landscape is becoming more favourable to corporate PPAs. Economics for new build projects are stacking up and presenting an increasingly attractive proposition.
Volatile energy prices are further driving large energy users to consider PPA options. In the UK we have seen a significant uptick in wholesale prices in the last 12 months. Looking at average Day Ahead prices in August & September 2018 of £60.59/MWh and £66.47/MWh respectively, there has been an increase of £15 – £20/MWh when compared to the last three years (2017: £45, 2016: £39, 2015: £40).
PPAs offer organisations a hedge against future volatile power prices; securing a fixed energy cost for a fixed period is now a key driver. Energy managers are experiencing the shift in pricing and can see that open positions are becoming riskier. Hedging for a long-term contract, potentially at or below wholesale, makes financial sense for any business.
Climate change and the impact on supply chains
Climate Resilience is beginning to appear on agendas in many boardrooms as the risks are becoming evident in supply chains, productivity and the balance sheet. In October of this year, a paper examining the effects of extreme drought and heat on barley crops and in turn beer production was published. The results indicated yield losses and in turn dramatic price increases across international markets.
The transition to science-based targets for carbon emission reduction is seeing many companies assess the broader scope of environmental impacts. While making progress towards their own renewable electricity targets, some are also examining their supply chain and requiring those up/ downstream to evidence their commitment to renewable and energy efficiency.
The latest IPCC report on climate change has provided some sobering figures. Warning that we have only 12 years left to keep things at 1.5 degrees; low lying lands, crop yields, extreme weather events and fish populations are at risk. The kinds of actions that would be needed to limit global warming to 1.5°C are already underway around the world, but they would need to accelerate.” said Valerie Masson-Delmotte, Co-Chair of IPCC Working Group.
Scenarios limiting global warming to 1.5 degrees will require transitioning our energy networks to 70-85% renewable energy penetration by 2050. Solar and wind will be the dominant technologies and main contributors to this evolution.
Starting your PPA journey
Elgin Energy’s PPA guide provides an introduction to Corporate PPAs, their benefits and explains key terminology. Armed with the guide and a better understanding of PPAs, it is worthwhile identifying organisations and advisors that can provide information and support to companies beginning to research PPAs.
Entering a PPA not only secures a fixed cost for your business, it also demonstrates your organisation’s commitment to operating sustainably. Begin your PPA journey today and play a vital role in combating climate change.
Get in touch with Elgin Energy’s PPA team today to get your hands on the guide or enquire about a PPA for your organisation.