PPA structures and parties involved

Demand for renewable corporate PPAs within Australia has surged in recent years, following the first deal concluded on behalf of the Victorian Government in 2016. Since 2017, Australian corporate PPAs have supported renewable energy projects with a combined capacity of approximately 10 GWh.

2020 was the biggest year yet for corporate PPAs in Australia, following subdued levels of activity in 2019. Numerous corporate and public entities (including Amazon, ALDI, CSIRO and Transurban) entered into significant long-term PPAs during this period.  

2021 saw a consolidation of the demand for corporate PPAs marked by 2020’s record numbers. While the overall estimated offtake size dipped slightly, 2021 was the second-best year on record and featured the return of notable buyers such as Sun Metals in respect of its PPA for the McIntyre Wind Farm in Queensland, BHP (Olympic Dam) PPA with Port August Renewable Energy Park in South Australia and Woolworths first PPA with CWP Renewables in NSW, as well as the entry of public companies such as Nestlé and PepsiCo.¹ By the end of 2021, returning buyers Telstra and Dexus had both concluded three PPAs and ISPT had concluded two.²

Strong demand for PPAs has continued through 2022 to date. Energetics reported that, as at 8 September 2022, PPAs totalling 1650GWh per annum had been announced.³

Local government and university providers maintain a large appetite for PPAs. A notable market entrant is the Hunter Council Buyers Group, consisting of six local councils in New South Wales. Joining the growing ranks of university purchasers are the University of Sydney, Victoria University, Flinders University and Charles Sturt University, which all signed PPAs in 2021 to 2022.⁴

Energetics’ Corporate Renewable PPA Deal Tracker reveals that at the time of writing, New South Wales is again the preferred host state in which to conclude PPAs in Australia. The data shows that the uptake of PPAs in the 2021 calendar year was greatest in Queensland, where Sun Metals, Dexus and Gregory Crinum Coal concluded deals for a combined capacity in excess of 1000 MW. During this period, Queensland remained reliant on a small number of very large PPA transactions though, whereas PPAs concluded in the New South Wales and Victorian jurisdictions are far more varied in size and capacity.

Corporate PPAs in Australia tend to be either sleeved or financial. ‘Behind the meter’ or direct wire PPAs for direct supply are also possible with the appropriate tenure and approvals (accounting for 11% of PPA deal types in 2020-21), however the resilience of the corporate PPA market is largely driven by the emergence of retail PPAs (accounting for 72% of PPA deal types in 2020-21) and wholesale PPAs (accounting for 17% of PPA deal types in 2020-21).⁵ The prevalence of behind the meter or direct wire PPAs is still limited due to the nature of the distribution infrastructure and energy market system in Australia.

As at 15 June 2022, Australia’s renewable corporate PPAs are almost exclusively underpinned by projects employing solar (37%) and wind technology (55%).⁶ By industry, resources and heavy industry comprise the largest share of purchasers at 38%, followed by built environment (including finance and universities) at 18% and information and communication technology at 12%.⁷ Transactions are facilitated by initiatives such as the Business Renewables Centre Australia (BRC-A). This platform has been a successful market-based initiative to coordinate local appetite for PPAs. It provides an online information hub to streamline the deal process and a marketplace for corporate purchasing of large-scale wind, solar energy and storage. Based on data collected from its annual survey of market participants, BRC-A estimates that the range of demand for buyers ‘pursuing’ a PPA is 420MW, while the range of demand for buyers ‘interested’ in a PPA is estimated to peak at 60MW.⁸

BRC-A is based on a previous platform led by the World Wildlife Fund-Australia’s ‘Renewable Energy Buyers Forum’, which boasted over 250 member organisations.

Footnotes

[1] Corporate Renewable PPA Deal Tracker, Energetics Deal Tracker
[2] Ibid.
[3] Ibid.
[4] Energetics Deal Tracker (n 1).
[5] The Business Renewable Centre — Australia, Corporate Renewable Power Purchase Agreements in Australia: State of the Market 2021 (Report, 2021) 16 (‘BRC-A State of the Market Report 2021’)
[6] Energetics Deal Tracker (n 1).
[7] Ibid.
[8] BRC-A State of the Market Report 2021 (n 5) 13.

Independent electricity plants owned and controlled by private sector companies produce approximately two-thirds of electricity in Bahrain, and their overall output is connected to the national grid under PPAs between the Electricity and Water Authority ("EWA") and the independent provider. [1]

Long-term power purchase agreements are seen as an incentive by a competitive procurement mechanism for attracting private investors to develop renewable energy projects in Bahrain. [2]

[1] Bahrain Diplomatic Handbook Volume 1 Strategic Information and Developments (International Business Publications, USA, 2018 Edition)

[2] The Kingdom of Bahrain National Renewable energy Action Plan (NREAP) Executive Summary (Sustainable Energy Unit, Bahrain, January 2017)

Corporate PPAs are relatively new phenomena in the Belgian market, but there is clearly a growing interest in them. The potential for corporate PPAs is now fully recognised because they allow undertakings to become more environmentally friendly while being supplied with electricity at stable and competitive prices. The project developer also benefits from concluding a corporate PPA, by obtaining a stable long-term income stream, thus enhancing the bankability of a project.

All relevant types of Corporate PPAs can be concluded in the Belgian market and under the regulatory framework in the country. Major corporate entities who have concluded Corporate PPAs with renewable electricity generated in Belgium include Google, INEOS and Borealis. Given the limited number of corporate PPAs concluded so far, it remains unclear what type of corporate PPA is used most often in Belgium.

Corporate PPAs are not currently deployed in Botswana.

Corporate PPAs in Brazil (which are essentially for solar and wind sources) have been exponentially growing in the past years and the regulatory and economic perspectives indicate that this trend will continue for the future.

Most PPAs in Brazil are physical, however, the development and maturity of this market has been leading to the rise of more complex arrangements, such as the trading of power derivatives, which have become more usual and popular in the last few years.

PPAs represent 60% of the annual sales of the National Electric System, according to the information provided by the National Electric Coordinator. That 60% is equivalent to 46,267 GWh as of December 2022.

The National Energy Commission estimated in its latest Electricity Demand Forecast Report for the period 2022-2049, that the electricity consumption of the National Electric System would increase from 76.3 TWh to 123.7 TWh, which is equivalent to an increase of 62.05% in that period, where regulated clients present annual average growth of 3.05% and nonregulated clients 2.02%.

Currently PPAs are frequently deployed due to the increase in the spot price of energy. Also, in case of a long-term energy demand (eg the supply required by distribution companies) PPAs continue to be the predominant agreement. 

PPAs are adapted to the requirements of both parties. Therefore, there are many structures that a PPAs can take, for example, physical delivery, take or pay contracts, delivery or pay, lump-sum contracts, fixed prices contracts, indexed prices. 

The first and most used PPAs in the generation industry in Chile is lump-sum contract, where within a certain period of time, usually monthly, there is a commitment from the generator to deliver and to sell a minimum or maximum of energy units (MWh). This implies that if the generator is not capable of generating the energy agreed upon, it must buy the energy in the spot market to fulfil the supply obligation.

A CPPA could be sold to a corporate buyer via a utility company or through a self-generation scheme. 

CPPA via a utility company takes the form of a Financial PPA in the sense that not physical delivery is required (a volume imbalance implies that the generator could buy the difference at the wholesale energy market). 

CPPA via a self-generation scheme takes the form of o Physical PPA. 

Financial PPAs between a corporate user and a generator are allowed by regulation and they can be negotiated over-the-counter or through the exchange market organized by the Colombian Stock Exchange (so called, DERIVEX). However, they are not commonly used because of additional regulatory costs that makes the deal not appealing in mostly all cases.

PPAs have not been used very much as the Czech Republic has not yet fulfilled its obligation under Directive 2018/2001 of the European Parliament and of the Council (EU) to adopt legislation and remove obstacles to the conclusion of such contracts. However, it can be expected that over time these contracts will be used more frequently.

We can distinguish between virtual and physical contracts. Virtual contracts are based on the customer purchasing electricity from the electricity trader at the market (spot) price. The generator and the customer then settle between themselves the funds received on the generator's side in relation to the price they have agreed in the PPA. If the spot price of the electricity received by the producer is higher than the price agreed in the PPA, the producer shall pay the customer the difference between the spot price of the electricity and the price agreed in the PPA. If, on the other hand, the spot price of the electricity received by the producer is lower than the price agreed in the contract, the customer shall pay the producer the difference between the agreed price and the spot price of the electricity.

In the case of so-called physical contracts, the supply of electricity is made by direct transmission of electricity from the producer's facility to the customer, where the electricity generation plant is often located directly at or near the customer's premises. The price of electricity may be negotiated as a fixed amount, regardless of the evolution of the electricity price on the market. Surplus electricity may then be resold to an electricity trader, this is however not always very beneficial due to the low price.

Following the initial Feed in Tariff (FiT) program launched in 2014, the Egyptian Electricity Regulatory Authority (EgyptERA), the regulator of electricity markets in Egypt, was motivated to start providing alternative schemes to the FiT, through the issuance of periodical books and decrees. This not only encouraged power generators to market their services to corporates and enter the market, it also motivated corporates to shop for lower tariff electricity to decrease their expenses, which resulted in various cPPAs being concluded in the last few years.

The operational schemes under Egyptian law are the net-metering scheme and the self-consumption scheme. 

Under the net metering scheme, the consumer must enter into a balancing agreement with the Egyptian Electricity Transmission Company or with a licensed distribution company, to allow for the sale of any surplus generation through the installation of a bi-directional meter to set-off their electricity consumption with the excess electricity they feed into the network.

As per a recent amendment to the net-metering scheme, it is only applicable if the consumer (off-taker) is the owner of the PV plant, which was not the case in previous CPPAs in Egypt. Nevertheless, it still permits the consumer to contract with a third party to construct, operate, and maintain the PV plant. Based on the above, for the consumer to make use of this scheme, the consumer will need to obtain the necessary licenses and permits from the Egyptian Electricity Regulatory Authority (EgyptERA) from the outset.

In contrast, the self-consumption scheme permits the consumer to enter into a PPA with licensed generators for the construction, ownership, and operation of the PV Plant, including its connection to the consumer’s internal grid. However, it is important to note that any energy surplus generated by the generator will not be injected into the government electricity grid.

Corporate PPAs are a recent phenomenon in Ethiopia and consist mainly of utility PPAs.

Under existing Ethiopian law, transmission and distribution of electrical energy through the integrated national grid system is exclusively reserved for the two Government-owned utilities (Ethiopia Electric Power or EEP tasked with generation and transmission of power and Ethiopian Electric Utility or EEU responsible for the distribution part). This implies that IPPs can sell electricity they generate to third parties (corporations, for example) provided they do not use the national grid system. Corporate PPAs, therefore, are permitted as long as IPPs use off-grid transmission.

In addition, Ethiopian law authorizes Ethiopian Electric Power (EEP) to lease electricity transmission lines. IPPs can, therefore, enter into a lease/ wheeling arrangement with EEP and sell the energy they generate to relevant third parties by leasing the national grid system.

Although the Ethiopian Energy Authority has recently issued a Directive to regulate the manner of involving in mini, off-grid power generation and distribution, the Directive does not deal specifically with corporate PPAs. Hence, at this stage, there is a lack of clarity on the type of structure cPPAs may take.

Both physical and financial PPAs are used in the market.

The use of corporate PPAs in France began to rise in 2019 and will probably continue to increase in the following years.

Before the emergence of corporate PPAs, renewable energy was promoted in France through a feed-in tariff (FiT) mechanism, where a producer could sell its production to an electricity supplier at a regulated price, and tendering processes. The FiT mechanism has been replaced mainly by the purchase obligation system and the contract for difference support mechanism (see Subsidies).

Renewable energy’s generation costs have decreased during the last few years, which allowed easier direct negotiations between the producers and offtakers, instead of a tendering process.

Also, PPAs allows the producers to secure the financing of the means of production which facilitates the development of new renewable energy projects.

Therefore, companies are being increasingly interested by the alternative brought by corporate PPA in order to (i) buy renewable electricity at a regulated price, and (ii) meet their corporate social responsibility (CSR)  objectives to produce more green energy and prove their consumption of renewable electricity.

Various corporate PPAs have been concluded in 2019 and 2020 notably by the following French companies: Boulanger, SNCF Energie, Crédit Mutuel Alliance Fédérale, Groupe Aéroport de Paris and Orange. This trend reflects the growing involvement of French companies with the RE100 global initiative to commit to 100% renewable energy by 2050.

In France, corporate PPA may take different forms: direct PPA (or physical PPA), indirect PPA (or sleeved PPA) and financial PPA (or synthetic PPA).

The duration of a corporate PPA may vary from approximately 5 years (brownfield projects) to 25 years (greenfield projects), depending on the maturity of the installation.

Although corporate PPAs are generally permitted in Germany, they are not widely deployed. This is mainly due to the way in which the German renewable energy support scheme works. 

In Germany, when marketing electricity generated through renewable energy sources, provided they meet certain criteria, installation operators generally have two options: they will either use (1) a form of financially supported marketing which allows operators to benefit from a "market premium" (which is a financial bonus for the operators of systems that generate energy from renewable sources and market their power directly on the free energy market), or (2) the so-called "other direct marketing form" (sonstige Direktvermarktung), which is not financially supported. 

Being able to utilize the "market premium" method mitigates market price risks and provides installation operators with a degree of comfort regarding their revenues. However, a precondition of being able to benefit from the market premium is that the installation operator must transfer the right to label electricity produced in the installation as 'electricity generated in renewable energy installations' to the competent network operator. If the installation operator transfers this right in order to utilize the market premium, it will no longer be permitted to also sell electricity as green energy to third party purchasers because to do so would cause it to be in breach of the so-called prohibition of multiple sales (Doppelvermarktungsverbot) under the German Renewable Energy Act. 

For new installation operators, corporate PPAs for the supply of green energy are only permitted under the German Renewable Energy Act where the electricity is marketed by way of the "other direct marketing form". Accordingly, operators of new installations cannot benefit from the "market premium". This often makes corporate PPAs financially less attractive to operators of new installations and/or corporations/utilities as potential counterparties. 

The situation may be different where market prices of electricity from renewable energy installations continue to move towards grid parity, meaning operators of new installations would not need to rely on the financial support offered under the "market premium" method. Further, the increasing desire of companies to be (or at least appear) sustainable means that many companies are willing to pay a higher price for green labelled energy. As a result, installation operators may opt for the "other direct marketing form" as doing so becomes increasingly financially rewarding.  

Moreover, the financial support offered under the "market premium" method is for a finite period of 20 years only. Corporate PPAs are, therefore, beginning to play an important role for existing installations that, after 20 years following their commissioning, fall outside of the support scheme. 

The development of standardised documentation for PPAs (e.g. as recently endorsed by the European Federation of Energy Traders - EFET) will likely lead to further interest in corporate PPAs in the German market and facilitate further engagement in them. 

Finally, interest in PPAs might further increase where the above-mentioned prohibition of multiple sales (Doppelvermarktungsverbot) under the German Renewable Energy Act is eased. In this respect, there is a growing debate on the limitations for the further development of renewable energy production in Germany this prohibition is creating.

Corporate PPAs in Greece (which are essentially for solar and wind sources) have been rapidly growing in the past few years and the regulatory and economic perspectives indicate this trend will continue in the future.

The current regulatory and legislative framework in Greece is at a premature stage, therefore there are no provisions regulating the specific form and/or structure of PPAs, either physical or virtual.

In general terms, under the applicable law, PPAs must include at least the details of the end costumer, the size of the RES plant’s installed capacity, the agreed energy consumption by the end costumer or the agreed energy to be purchased by the electricity supplier and the duration of the PPA, which must be at least eight years.

There was a significant gap between the closure of the Renewable Energy Feed In Tariff (REFIT) schemes to new applicants in December 2015, and the first auction under the Renewable Energy Support Scheme (RESS) in 2020. During this gap, project developers which did not have the benefit of REFIT support were forced to consider other routes to market options and the first unsubsidised Irish corporate PPAs emerged in this period.

Irish government policy is to promote corporate PPAs (cPPAs) as an alternative to RESS and, in this regard, Ireland’s 2019 Climate Action Plan included a target of 15% of electricity demand to be delivered by renewable energy cPPAs. RESS takes the form of a floating feed-in premium (similar to a CfD) and is allocated by periodic auctions of which there have been two to date. However, cPPAs are increasingly seen by generators as a viable alternative to RESS. One caveat to this is that the third round of the RESS Scheme will introduce compensation for oversupply and curtailment and it is not yet clear how this will affect pricing in that auction and the competitiveness of cPPAs (see further detail below).

To date, the Irish cPPA market has been dominated by big tech companies. But the last few years has seen a wider group of corporates exploring the possibility of cPPAs. These include the agri/food sector, manufacturers including in the life sciences sector and the financial services sector.

There is a combination of reasons for the increased use of cPPAs in Ireland. From a buyer’s perspective these include ESG requirements and price certainty. The prices in the Irish Single Electricity Market (the SEM) have been volatile and, although they began to fall back in 2023, have been elevated for a significant period. CPPAs offer corporates a hedge against future volatile power prices by securing a fixed energy price for a period of ten to fifteen years.

From a generator’s perspective, cPPAs are increasingly seen as a viable, and crucially bankable, alternative to RESS participation and allow projects to be brought forward outside the RESS auction timeframes.

As outlined below, the Irish regulatory framework is such that, save for assets having a maximum export capacity of less than 10 MW (which are not considered in this guide), participation in the SEM is mandatory. The mandatory nature of the SEM means that the physical PPA structures adopted in other jurisdictions including in the UK must be altered for Ireland (see below).

Virtual cPPA structures used in other jurisdictions can be applied in the Irish market with significantly less alteration as there is significantly less interaction with the SEM. Virtual PPAs in the Irish market are typically settled at the difference between the agreed PPA Strike Price and the SEM Day-Ahead Market Price. In a Virtual PPA structure, the generator will typically have a separate arrangement with a licensed supplier in respect of the physical sale of its power into the SEM for a pass through to the generator of the Day Ahead Market Price and the corporate will similarly have an agreement with a licenced supplier for the purchase of its power requirements from the SEM at the Day Ahead Market Price.

Corporate PPAs are used in Italy for energy sources but with certain limitations.

Corporate PPAs are short-term contracts in Italy (usually having a duration of 1 year) and adopt the sleeved structure. A key limitation to the use of corporate PPAs are their duration as it is not long enough to allow the project to be bankable or become profitable.

Existing long-term corporate PPAs provide for a term not longer than 5 years and variable prices based on the market price of the energy.

The market does not offer long-term corporate PPAs due to risks associated with long-term energy price trends and the buyer's financial standing long-term requirements.

Long-term corporate PPAs do not offer prices which are capable of sustaining a project from a financial perspective. The current legal framework does not provide any form of public guarantee or mitigation of such risks.

Currently, most of the electrical needs of the country are met by KPLC (Kenya Power and Lighting Company) with power being generated by KenGen (a government-backed power generation company) and Independent Power Producers (IPPs) who enter into long-term PPAs with KPLC. KPLC then distributes energy and sells to retail consumers. 

Changes brought in with the Energy Act of 2019 ("Energy Act") opened up the power sector by permitting other entities to distribute and transmit power and also allowing for net metering and wheeling of generated power. 

Although, most large corporates have only recently genuinely begun exploring how they might generate their own power.  There are a few limited examples of this:

• Some large malls and corporate headquarters in Nairobi have financed and installed solar systems to generate power without the use of PPAs.
• Other parties have used direct wire/private wire PPAs. These usually take the form of roof-mounted solar panels installed by a contractor/operator on premises owned by the corporate and operated for a fixed term with fixed prices for power generated. 

Generation of up to 1MW of power for ‘own use’ is permitted under the Energy Act without the need for extensive licensing. This makes the approaches highlighted above appealing to corporates who want a simple fix to the rising costs of power in Kenya. Direct wire PPAs also avoid the need to rely on any external party for transmission or distribution, further reducing the potential for administration and bureaucracy. 

Virtual PPAs and sleeved PPAs are almost non-existent in Kenya. This could be because the regulatory framework is not mature/sophisticated enough (see below) and/or because corporate sustainability goals/targets for the use of renewable energy can, in fact, be inadvertently met by reliance on the national grid (more than 70% of Kenya’s energy is already generated from renewable sources). 

We expect further development in this area as the Energy Act imposes obligations on designated factories and buildings to conserve energy and assess energy consumption (ss. 188 and 189). PPAs which give corporates the freedom to choose more efficient energy sources may therefore be an attractive solution to some large manufacturers or industrial groups.

Traditionally in Mexico, Corporate PPAs have been Physical PPAs under the legacy regime called Autoabastecimiento or Self-Supply, where a group of medium to large consumers (usually belonging to the same corporate group) together with a selected generator form a corporation (the “Self-Supply Corporation”), which will be responsible for obtaining the necessary permits (particularly important is the power generation permit from the Energy Regulatory Commission “CRE”) and entering into the relevant agreements (particularly important are the Transmission Agreements for the wheeling of electricity with the State-owned transmission and distribution utility “CFE”). The generation would own the vast majority of shares in the Self-Supply Corporation and the consumers would need to own at least one share. The PPA would be entered directly between the Self-Supply Corporation and the consumers.

This Self-Supply regime was the only mechanism available to purchase the electricity from a private generator. Prior the energy reform of December 2013 in Mexico, only the CFE could generate and sale power and electricity. The Self-Supply scheme was an exception to the CFE state-owned monopoly, where private parties were allowed to generate their own electricity through the Self-Supply Corporation. With the reform of 2013, the projects that were developed under the Self Supply scheme have been recognized as legacy projects and will remain valid for the remaining duration of the Transmission Agreement entered into with the CFE. Although no more projects of this type will be authorized.

After the energy reform, the electricity market has been opened to private participation in generation, marketing, and supply of electricity. Only physical transmission and distribution of electricity remain a state monopoly. As the market develops, we will begin to see different types of corporate PPAs.

Law No. 13-09 relating to renewable energy¹ introduced the possibility for operators of renewable energy production installations to enter into direct power purchase agreements with end-users to sell the electricity produced. The price is freely agreed between the parties and is not determined by the law (no feed-in tariffs). However, the end-users cannot resell the electricity to third parties.

Law No. 13-09 requires that all renewable energy projects be connected to the national grid. Therefore no direct wire projects can be implemented pursuant to Law No. 13-09. In this regard, the operator has the right to access the national low-voltage, medium-voltage, high voltage and very high-voltage grids within the limit of their carrying capacity.

[1] Law No. 13-09 relating to renewable energy as amended by law No. 58-15 and its implementing decrees

The Mozambican government is attempting to develop the Renewable Energy sector to connect more communities to the grid and grow the economy.

Corporate PPAs in Mozambique most closely resemble the sleeved structure, known as an "off-take" agreement in Mozambique.

Electricidade de Moçambique (EDM) is the national utility company, and because it manages the national grid, it tends to be the sole electricity off-taker. There are only a handful of projects which has a corporate buyer of electricity directly from the generator.

Corporate PPAs (cPPAs) are steadily gaining ground in the Netherlands, although not as rapidly as in some other European countries. Over the last few years, reduced pricing under the SDE++ subsidy system coupled with increasing CAPEX costs for renewable projects (along with traditional challenges such as grid access and spatial planning issues) have made it increasingly challenging for project developers to set up bankable projects. This has led the market to look for viable alternatives to the long-standing subsidy model, one of which is cPPAs, which offer increased financial appeal and bankability due to price predictability.

One pressing challenge for broadening access to cPPAs in the Dutch market is the varied creditworthiness of potential offtakers. To make cPPAs more accessible, especially for parties with lower credit ratings than large multinationals, effective credit enhancement products will be key. On the other hand, the EU's strict unbundling regulations have negatively affected the creditworthiness of traditional offtakers such as utility companies, indirectly incentivising project developers to look for offtakers with a higher degree of creditworthiness (alternatively acceptable forms of credit enhancement).

One interesting development, particularly for data centres, is that the Amsterdam Internet Exchange (AMS-IX) has positioned Amsterdam as a desirable location for such developments. These data-intensive businesses are increasingly becoming major participants in cPPAs to meet their (substantial) energy requirements.

Although the sleeved model has been more frequently used in the Dutch market, all forms of cPPAs as they are known in other jurisdictions can be implemented in the Netherlands. Prominent players such as Microsoft, Google, NS (the state-owned Dutch railway operator), Philips, AkzoNobel, and DSM often express interest in and have participated in cPPA structures. Regulatory oversight is offered by the Netherlands Authority for Consumers and Markets (ACM), which enforces the Electricity Act and Gas Act.

In comparison to the US and Europe, the New Zealand PPA market is in a relatively nascent stage. However, demand for corporate PPAs has increased in New Zealand in the last two to three years, driven both by a focus on sustainability and coinciding with a significant increase in the pipeline of solar generation in New Zealand. New Zealand has an aspirational target of 100% renewable electricity by 2030. 

At the larger end of the market, a group of New Zealand’s largest commercial and industrial energy users (the Major Electricity Users Group) have entered into various PPAs to meet their combined annual electricity demand of around 2,000 GWh, or 2 TWh. This group continues to procure PPAs on a competitive basis. In the technology sector, large technology off-takers such as Amazon and Microsoft have also entered into significant PPAs in connection with data centre development. 

We are increasingly seeing PPAs moving into other sectors such as retail, government, education and agriculture. 

Typically, corporate PPAs tend to be financial. Direct-wire, behind the meter PPAs are also possible; for example, there are some of solar developments close to an offtaker wishing to secure its own source of power (eg for use in a wastewater treatment facility).

Corporate PPAs for hydropower and onshore wind (in addition to future offshore wind) in Norway typically have a term of 10 to 25 years. Pricing models may affect the term of a PPA. We expect that solar PPAs will be more visible in the market in the near future when the regulatory changes have been implemented. 

Corporate PPAs are long-term contracts, under which an entity/business agrees to buy electricity directly from an energy generator.

Corporate PPAs are widely used in Peru’s energy market and are either sleeved or physical wherein either distribution companies or free customers purchase energy directly from the generation companies. 

Distribution companies serve all regulated clients and for that purpose, pursuant to Law 28832, Law to Secure the Efficient Development of Electricity Generation, they carry out competitive tenders, at firm prices, to acquire energy and capacity from the generation companies. These tenders result in the execution of long or medium-term PPAs. 

OSINERGMIN, Peru’s energy regulator, approves all bidding documents (including contract templates). Distribution companies may enter into short bilateral PPAs with producers to cover to possible future energy imbalances, but they represent a very small percentage of their energy consumption.

Free customers and generators directly negotiate the terms and conditions of their PPAs.

Financial and direct line corporate PPAs are yet to be developed in Peru.

Corporate PPAs are not yet predominant on the Polish market, but they are becoming more popular. According to the information presented by RE-Source as of September 2023, approx. 1 GW of capacity was contracted under cPPAs in Poland. 

Most of the cPPAs so far were virtual PPAs and under the pay-as-produced structure. But this is changing, and more cPPAs with physical delivery are being negotiated. 

The basic types of cPPAs in Poland include:

• Volume: pay-as-produced (prevails) or baseload/forecasted volume types.
• Type of settlement: physical delivery or financial settlement (virtual), the latter prevailing so far.
• Location:
  • Onsite cPPA, in which the source is directly connected to the consumer's installation (this involves locating generation facilities in close proximity to the consumption sites).
  • Offsite cPPA, in which the source is not connected to the consumer's installation (this involves locating sources anywhere in the country and transmitting energy via the transmission or distribution network) – prevailing type.
  • Offsite cPPA, in which electricity is supplied through a dedicated cable line between the generator's installation and the consumer's (this involves the use of a direct line).

While cPPAs are on the rise in Portugal, their deployment is still quite limited and continued growth is expectable. 

The most common form of cPPAs in Portugal are physical PPAs. Moreover, Private Wire PPAs are trending, as companies become more sustainability centered.

The liberalization of the power generation sector in 1998 has led to the advent of independent power producers in Senegal, and consequently to the growth of power purchase agreements (PPAs).

On October 3, 2003, the Commission de Régulation du Secteur de l'Électricité adopted Regulation No. 02-203 on the granting of production licenses to independent producers through calls for tender.

The first electricity purchase contracts concluded between Societe Nationale d’Electricite (Senelec) which is the Senegalese national electricity company, and independent power producers related to thermal power plants, notably Contour Global in December 2000 with a capacity of 89.2 MW and the Kounoune plant in February 2008 for a capacity of 67.5 MW.

In 2010 with the development and promotion of renewable energies through the enacting of the Renewable Energy, the government of Senegal, through Senelec, concluded the first PPA dealing with renewables, which is the Bokhol solar photovoltaic plant with a capacity of 20 MW followed by other PPAs such as the Taiba Ndiaye wind for a capacity of 151.8 MW.

The Energy Sector Regulatory Commission (CRSE) is the institutional authority in charge of regulating the electricity, downstream hydrocarbon and downstream gas sectors. The CRSE is vested with broad powers, including issuing opinions, taking decisions, making regulations and issuing implementing regulations.

The structure of the PPAs takes the form of a technical and commercial contract signed between the independent producer and Senelec in accordance with the concession agreement signed between the latter and the state of Senegal. This PPA model is based on “take or pay” with a commitment from the Senelec to purchase exclusively all the electricity produced by the independent producer whether or not Senelec is able to take it into its network, for example, due to network unavailability or curtailment measures.

In terms of guarantee, the state provides its sovereign guarantee to mitigate the risk associated with take or pay agreements.

This same take or pay structure will be applied to the future 300 MW gas-fired power plant to be built in Dakar sponsored by West African Energy with the Turkish company Çalik Enerjiand the US group General Electric (GE).         

The use of corporate power purchase agreements ("CPPAs") has increased in recent years, partially due to renewable energy generation and storage technology becoming more affordable. It has also been driven by increased appetite from corporates to act in a more sustainable and socially and environmentally responsible manner. Due to certain intermittent electricity supply issues faced in the country, corporates have also sought to diversify their energy supply arrangements so as to place less reliance on utility generated power.

The most common forms of CPPAs in South Africa, in our experience, tend to be those concluded on a direct or private wire basis or a wheeled basis.

Direct or private wire CPPAs typically involve a generation facility being built or installed on, or adjacent to, the property of the corporate. The facility is developed, owned and operated by an independent power producer ("IPP") and the corporate buys all or a portion of the power from the IPP. Any required power in excess of that generated by the IPP is provided by the utility (national utility or municipality).

Generally speaking, for a wheeled CPPA, the corporate concludes a CPPA with an IPP and electricity is ‘wheeled’ by the utility from the IPP to the corporate via the grid. The CPPA itself will be a bilateral arrangement concluded between the corporate and the IPP, and will regulate the purchase by the corporate of renewable energy from the IPP. In addition to this, a series of further agreements is required to cater for the ‘wheeling’ of energy. More often than not, wheeling is achieved through a series of amendments or contractual modifications to (i) the standard form power supply agreements between the utility and its customers (i.e. the corporate) and (ii) the distribution, connection and use of system arrangements between the grid operator (Eskom) and generator (the IPP).

In 2018 the use of PPAs began to take off in Spain. In that year some major PPAs were signed: Audax with Cox Energy (600 MW) and WElink (708 MW); Iberdola with Euskaltel (500 MW) and with Kutxabank (391 MW); and Factor Energía with ENHOL (94 MW, the longest lasting PPA in Spain – 20 years so far). In 2019 other major PPAs were: Audax with the Chinese giant Trina Solar (500 MW), and with the Norwegian company Statkraft (525 GW yearly, over 15.5 years). Since 2018, the Spanish PPA market has grown to become the major market in the EU.

According to the Electricity Sector Act (Act 24/2013), PPAs in Spain may take one of either the following forms:

• Physical PPAs. Where the corporate consumer acquires legal title over the electricity. Current options via batteries or derivatives contracts may still result expensive, so there are options to be offered to corporate consumers that can better manage this risk by firming up load requirements from a retailer via, for example, a “sleeved” Synthetic PPA.
• Financial PPAs:
  • Contracts for Differences (CfDs): prices are cleared with respect to one strike price established by the contract.
• Collar PPA: including cap-and-floor prices to constraint final prices within a given range.
• Direct PPA (self-consumption), where there is a direct on-site supply through the direct physical delivery of electricity between the producer and the corporate consumer.

The Nordics are often seen as one of the most environmentally progressive areas of Europe. Sweden was the first country in the world to pass an environmental protection act, as well as hosting the first UN conference in 1972 focusing on the global environment. Therefore, it will not come as a surprise that Sweden has ambitious goals for sustainability going forwards. The Swedish government has pledged to become fossil-free by 2045 using 100 per cent renewable energy.

Corporate PPAs have been, and continue to be, a useful tool to enable Sweden to reach its goal. Indeed, Sweden hosts one of the most developed corporate PPA markets in Europe.

PPAs have gained favour in Sweden for a number of reasons. First, fluctuating market prices for power and some bad experience with shorter term financial hedging have led mainly lenders to seek long term price security. It is exceedingly difficult to raise bank debt for a project absent a PPA. Second, a trend has been set in Scandinavia for large data centres operating in the Nordics to sign up to PPAs for their power consumption needs.

For some time after the PPA market got going in earnest, pay as produced, physical PPAs were the most common form of agreement structure. However, over recent years we have worked on a full range of PPA forms in Sweden - including synthetic, portfolio and baseload structures. At the time of writing we have worked on over 5GW of onshore wind PPAs in the Nordics all with varying PPA solutions.

PPA contracts are increasingly used in Tunisia, for several reasons, including the increase in demand for electricity, the recent diversification of sources of electricity production and especially new energies, and also for the liberation of the production of electricity which resulted in the emergence of new producers in the form of private companies of electric energy.

In fact, the production, transport, distribution and import of electricity and fuel gas have been nationalized in Tunisia since 1968. The management of these activities is mainly entrusted to a public establishment called Tunisian Electricity and Gas company (STEG). Then, since 1996, Tunisia has liberalized the production of electricity, allowing private companies, through authorizations or concessions, to invest and set up projects in electricity production. 

(Art. 1, Art. 3 and Art. 4 New Decree-Law No. 62-8 on the creation and organization of STEG+ Decree No. 96-1125 of June 20, 1996, setting the conditions and procedures for granting the concession of electricity production to private persons).

There are therefore several electricity generators, but only one offtaker (at the national level), namely STEG.

PPAs differ according to the electricity generation regime:

• authorizations: for the production of electricity from renewable energy to meet local consumption needs;
• concessions: (i) for the production of electricity from green energies for export, (ii) for the independent production of electricity, (iii) for the production of electricity from gas from hydrocarbon concessions. 

The PPA structure is a direct contract between the generator and the public company entitled with a monopoly of supplying electricity to end users.

The contract should comply with the template or model enacted by the law.

At this regard there are two templates or model contracts:

• The first is about the purchase by the offtaker of the electricity produced from renewable energy by the Generator.
• The second is about the transportation by STEG (STEG) in its network of the electricity produced by the Generator and the purchase of STEG of the surplus produced by the generator from the renewable energy.

Corporate PPAs are uncommon in Uganda.

Power generation by private entities is strictly regulated across the Middle East. In certain countries the only means of entering a non-utility scale transaction is under a net-metering scheme. Generally such schemes are arranged on the basis that the owner of a property will also own the power generation plant.

Notwithstanding, we do see corporate PPAs in the Middle East where the energy facility is located on-site or adjacent to the business needing the energy. However the agreement structure tends to be a leasing or hire-purchase structure where the offtaker pays for the power generation plant according to its performance.

Wheeling regulations are becoming more common in the region, thereby allowing energy generated from a renewables facility in one location to be bought by an end user in another, using the national/local grid network.  Jordan is perhaps the largest market where wheeling of power takes place.

Corporate PPAs have become more prominent in recent years due to the rise of wind and solar in GB and the convergence of a number of market conditions. The closure of the Renewables Obligation (RO) scheme to new participants from 31 March 2017 has meant that generators are seeking alternative financing options. Corporate PPA prices are increasingly beating wholesale electricity prices. cPPAs have become an attractive prospect for corporate buyers who increasingly want to be seen to be acting sustainably. cPPAs offer corporates a hedge against future volatile power prices by securing a fixed energy price for a fixed period. Major corporates in the GB Corporate PPA market now include Shell, M&S, Unilever, Sainsbury's, Nestle, McDonalds, Lloyds and HSBC. In addition to this, an increasing number of corporates are becoming members of RE100, a group of companies that have pledged to work towards meeting 100% of their energy needs from renewable sources.

The electricity and gas markets in GB are regulated by the Gas and Electricity Markets Authority (GEMA), operating through the Office of Gas and Electricity Markets (Ofgem). Ofgem makes decisions on a wide range of regulatory matters, including price controls and enforcement. The regulatory framework and the aggregated nature of the electricity grid meant that the large majority of cPPAs in GB have been concluded using the "sleeved" structure or so-called "physical" PPAs, where electricity is physically settled. Although GB has seen synthetic PPAs, where no electricity is physically delivered, but the price differential between an agreed price and the wholesale electricity price is paid (i.e. financial settlement) (e.g. M&S), this approach has not yet been widely adopted.

The structure of sleeved cPPAs is intended to mitigate risk for the corporate buyer by passing through balancing obligations and liability to a utility. A sleeved cPPA involves a direct agreement between the corporate buyer and the generator to purchase all or some of the electricity generated at a pre-determined price. All too often, the corporate does not have the capability to manage the actual power offtake, including necessary balancing services. The corporate buyer, therefore, additionally enters into a bilateral agreement with a utility, who will then act as the corporate's agent in managing the offtake as well as taking care of all balancing services and grid access. This cPPA offtake will be credited by the utility against the corporate's electricity requirements, and the utility will then top it off during any periods where the corporate's demand is higher than the generator's actual output. The utility will charge a management fee for its services in relation to the cPPA called the "sleeving fee".

Many private companies in the United States have altered the way they procure power significantly in the last decade.  Traditionally, power was obtained by corporate buyers from the local utility without consideration of the sources of such power. Public commitments to use renewable or “green” energy have driven a movement toward the direct procurement by commercial and industrial companies of renewable energy from independent power producers in the wholesale market. Such commitments came first from tech companies but have spread across many sectors, from retailers to industrial manufacturers. In 2020, the Renewable Energy Buyers Alliance reports that 10.63 GWs of corporate deals were announced in the US up from 1.53 GWs in 2016. The EPA’s Green Power Partnership, a voluntary program, now sets minimum usage for its members from 7% to 50%.  Commitments to go 100% renewable or even carbon negative have become more common - the RE100 reports that 79 of its 260 members are in the United States.[1]

Multiple options are available to a corporate offtaker looking to achieve its green power goals. 

Renewable Energy Credits

Historically, corporate buyers have purchased and retired Renewable Energy Credits or RECs separate from power procurement to demonstrate the reduction of carbon emissions. This strategy is still being employed. The NREL reports about 197,000 customers procured about 68.7 million MWh of unbundled RECs in 2019. 

Self-Supply

Another option for corporate and industrial buyers to gain access to renewable energy is through the ownership of on-site generation. This is not achievable at every location since only certain places in the US are suitable for solar or wind, for example. This approach also depends upon the buyer having sufficient space and a facility that can support on-site generation.   

Traditional PPA with an Independent Power Producer

A Traditional PPA involves the direct purchase of energy from a generation project and the physical delivery of energy from such project. The buyer takes title to the power at the delivery point. This requires the ability to physically interconnect either directly or through the local transmission grid. Generation equipment may be installed on-site, including wind turbines or rooftop or ground-mounted solar facilities. The transaction usually includes the purchase of RECs along with the energy. Under existing regulations, physical transactions directly with wholesale producers are not permitted in all locations.      

Virtual PPA with an Independent Power Producer

Virtual PPAs or financial PPAs are based on a contract for the purchase of energy generated by a renewable project which is then physically delivered and sold into the regional wholesale market in which the renewable project is located. The project receives a variable market price from the regional market. If the contract price exceeds the market price, the corporate offtaker pays the project the difference. In this way, the power project is assured that it will sell power generated at a fixed price which supports development and financing of the project.  The transaction is often in the form of a contract for differences or a fixed-for-floating swap.  A Virtual PPA also typically includes the purchase of RECs.  Divorcing the transaction from the physical delivery of energy provides broader flexibility to corporate offtakers in addressing practical constraints and regulatory restrictions which can limit potential transactions.   

Green Tariffs

Bundled products are offered by utilities in some locations including green power and RECs. Retail products can be market-based or linked to a specific renewable project which are sometimes called “Green Tariffs.”

[1] RE100 is an association sponsored by The Climate Group that include companies making such a commitment such as Google, Bank of America and Facebook. See REI100’s 2020 annual progress report online.

The electricity market structure in Zimbabwe comprises one utility company, the Zimbabwe Electricity Supply Authority (ZESA). This is a state-owned entity whose task is to generate, transmit and distribute electricity in Zimbabwe. The functions of ZESA are performed through the Zimbabwe Power Company (ZPC), the investment vehicle in the generation of electricity, and the Zimbabwe Electricity Transmission and Distribution Company (ZETDC), the body responsible for the transmission and distribution of electricity. The Zimbabwe Energy Regulatory Authority (ZERA) regulates the procurement, production, transportation, transmission, distribution, importation and exportation of energy derived from any energy source in Zimbabwe. ZERA is responsible for approving power purchase agreements (PPAs) between IPPs and ZETDC (the Utility) and it provides the criteria for tariff approval through a Tariff Code. 

Corporate PPAs (cPPAs) in Zimbabwe are, on the balance, not widely deployed. They have been developed over time in an ad hoc manner, mainly by large corporate buyers (eg mines and cement plants) who wish to secure reliable electricity supply as a result of persistent power shortages for several years, resulting in regular and disruptive load shedding. 

The most common structure for cPPAs in Zimbabwe is the Private Wire/Direct Wire structure, whereby the generator/IPP sells electricity directly to a corporate buyer, rather than being notionally passed through the national power grid.

Some projects have also been structured as Physical PPA/Wheeling PPA/Sleeved PPAs (or hybrid/substructure thereof), whereby the IPP/generator enters into an agreement with ZETDC to sell power to ZETDC and simultaneously, a corporate buyer enters into a contract with ZETDC to purchase all the power generated by the generator. ZETDC thus "sleeves" the power through the grid and “sells” power to the corporate buyer at its site. ZETDC will perform a balancing service under this PPA (renewable energy is intermittent) by topping up the renewable electricity with extra if needed (for example when the generator is not generating). ZETDC then charges a wheeling fee. 

Alternatively, the corporate buyer and IPP/generator can negotiate a PPA directly and then present the PPA to ZETDC, the electricity supplier. ZETDC then:

• as the buyer, enters into the PPA with the IPP/generator (seller); and
• as the seller, enters into the same PPA with the corporate buyer but with a mark-up on the price to cover its cost.

These have been somewhat successful in helping ZETDC pay for imported electricity in foreign currency, which is currently in shortage. 

Other IPPs and corporate buyers have also elected to structure their PPAs in the form of a hire purchase agreement, or equipment lease, with the underlying price being linked to the energy produced by the applicable system. This is mainly done to address the requirement of obtaining a license for the sale of power. 

Note: As an alternative to entering into a PPA with a renewable generator, some corporates may also choose to build a renewable energy plant onsite eg on the rooftop of, or alongside, a factory or office. In this case, the corporate will self- fund the installation itself, or take out a loan.