Challenges

What are some of the technical, political, financial or regulatory challenges to corporations adopting green energy in the short/medium term in your country and how have these challenges been overcome (or how can they be overcome)?

More incentives and benefits need to be created for companies that want to implement green energy systems. Facilitating the process of importing and accessing currencies to pay for equipment to implement the projects related to renewable energy is necessary. Governments should create incentives for companies that are implemented across the country, thereby creating employment and facilitating greater acceptance of new technologies in rural areas.

Last modified 9 Feb 2021

Australia is a party to the Paris Agreement, however it is yet to enshrine its commitments into law. As a result, and given little policy guidance from the Federal Government, interested parties are left with little policy certainty on emissions reduction. That said, most of the Australian States have committed to carbon emission targets.

Notably, there was a considerable downturn in corporate PPA activity during 2019. Among other things, the slowdown was attributed to:

  • uncertainty surrounding the 2019 Federal election in Australia and potential changes to renewable investment incentives associated with the election outcome;
  • project delays brought about by grid connection issues and the installation of synchronous condensers in the electrical grid;
  • policy and regulatory uncertainty stemming from AEMO’s changes to the marginal loss factors applied to project revenues; and
  • general uncertainty surrounding wholesale electricity prices.

Energy and climate policy uncertainty has been a feature of Federal politics for well-over a decade. The latest manifestation of this policy uncertainty is the future of the Energy Security Board, which is an expert panel set up under former Prime Minister Malcolm Turnbull in attempt to give a greater role to scientists and energy experts in the policy debate. National cabinet – a new governance framework formed in response to COVID-19 and now seemingly expanding to other policy areas – reportedly discussed the Board’s performance to date and potential senior appointees, however owing to Cabinet confidentiality, at time of writing the Board’s future is not yet known.

The strong business led growth of PPA uptake in 2020 indicates that the challenge posed by this uncertainty can be overcome, even as the national debate on the role of coal generation continues to make headlines and divide political parties.

On a more general level, Australia continues to feature a complex regime for renewable energy, with a range of Federal and State Government laws and policy mechanisms that apply. Regulatory challenges therefore place some limitations on the implementation of PPAs without using a retailer.

Last modified 16 Dec 2020

Private production of electricity in Bahrain requires authorization from the relevant government authorities in Bahrain (either through legislation or concessions).

The current Electricity Law allows for the private generation of power. Each IPP scheme, however, requires a written authorization from the relevant minister and an approval from the Cabinet. As the law was drafted at a time when renewable energy was yet to be considered a viable alternative source of energy, this scheme is not suitable to stimulate private investments in renewable energy as it is geared towards large-scale conventional power plants, where fuel input is an important consideration.

Renewable energy technologies have substantively matured, the costs have declined, and the options have improved.

To stimulate investment in renewable energy, the current law needs to loosen its requirements and allow private deployment of renewable energy plants without an extensive prior authorization process from the government. [1]

The laws in Bahrain do not authorize exporting onsite generated energy to the main grid. To stimulate investments in renewable energy, especially by households and commercial users, it is important to allow renewable energy plants to export the excess power to the grid.

Under the current legal framework and market structure, EWA is the sole buyer and distributor of electricity in Bahrain. To motivate private developers to invest in renewable energy, there needs to be a mechanism whereby private investors are able to sell the power produced from renewable sources and generate income. The key components of such mechanism are price and guarantee of purchase of electricity from renewable sources. Thus, it is important to set a policy that will define a purchase price for electricity from renewable sources and guarantee the purchase of such electricity. Such policies can be either feed-in tariff policy, or auctions or public competitive tenders. [2]

Electricity in Bahrain is mainly produced from natural gas, and, as a result, the cost of power generation depends highly on the gas price. Therefore, according to estimations of planned gar price increases, the cost of electricity supply will increase even more with time. [3]

In addition to the above, another technical and financial challenge Bahrain faces is the inefficient electricity production system, and the reinjection of a relatively large quantity of gas to support enhanced oil recovery. As a result, Bahrain uses almost three-quarters of its primary energy for electricity production, energy industry own use and non-energy use. [4]

Although Bahrain has attempted to subsidize electricity tariffs, that in itself is not efficient. In this regard, and as a way to overcome the same, EWA along with the SEA have introduced, and are implementing, the National Energy Efficiency Action Plan (“NEEAP”) whereby they are moving towards using less energy for the same output or service, cutting costs in the long-run. [5]

[1] The Kingdom of Bahrain National Renewable energy Action Plan (NREAP) (Sustainable Energy Unit, Bahrain, January 2017)
[2] ibid.
[3] No. (4).
[4] No. (4).
[5] ibid.

Last modified 16 Dec 2020

An important regulatory challenge for CPPAs with a fixed price comes from the subsidy regime. As outlined in detail below, the most important subsidy mechanism in Belgium is a green certificate scheme. The goal of the green certificate scheme is to ensure that renewable energy projects are not loss-making. The amount of green certificates a producer is entitled to can therefore fluctuate over time, depending on the electricity price. In these circumstances, a developer of a renewable energy project may be reluctant to enter into a CPPA with a fixed price. This is because if the electricity market price increases, the project developer may receive less green certificates, while the price at which he sells his electricity remains the same, resulting in a loss.

On a more general level, it is noted that developers of renewable energy projects are faced with limited availability of sites due to spatial planning restrictions, as well as potential opposition from local residents (NIMBY). 

Last modified 25 Feb 2021

Various stakeholders have identified the following key challenges to adopting green energy:

  1. Subsidised thermal tariff;
  2. A general lack of energy information for policy, planning and decision-making;
  3. Ineffective private sector participation and low investment in the energy sector possibly due to the lack of clear policy and incentives as well as the previous absence of an impartial regulator to provide a level playing field for the industry;
  4. A lack of a detailed renewable energy strategy;
  5. A lack of trained personnel in the energy sector;
  6. The focus is mainly on base-load energy supply, transmission grid reliability, service delivery, financial turnaround and rural electrification. 

Many of the challenges mentioned above gradually being overcome by the establishment of BERA.

Last modified 9 Feb 2021

Financial

There is a financial risk associated to the corporate PPAs considering the uncertainty of future energy prices. The price of the spot energy market, which is currently calculated weekly, takes into consideration several variables such as hydrological conditions, power demand, entrance of new players, amongst numerous others. Therefore, the prices may rise significantly and directly affect the parties; or they may decrease and become a competitive disadvantage. This risk may be mitigated by means of a price review mechanism agreed between the parties. Note that, as of  January 1st, 2021, the spot price will begin to be calculated on an hourly basis, which is good news for the market, since it will reflect the complexities of Brazilian power mix with more accuracy.

Planning

Considering the long-term structure of corporate PPAs, the offtaker needs to estimate its power consumption level, taking into consideration the possible growth in its consumption, as accurately as possible, otherwise some divergences between the planned and the actual consumption rate may occur. In order to mitigate this risk it is important to establish contractual mechanisms that are able to absorb some variations regarding the initial planned amount, such as defining a contracted amount limited to a percentage of the global charge, or contracting a diversified portfolio, with different term and delivery conditions, to minimize any exposure.

Counterpart

Corporate PPAs are used by the developers to obtain funding for the construction of their facilities and delivery of the agreed power. Until the generator’s facilities are completed there is a risk of delays or issues in the construction of the plant and, therefore, in the delivery of the contracted power supply. To mitigate such risk, it is important to analyse the developer’s background and its capability of delivering the project on time and include provisions in the PPA regarding construction and delivery milestones. Another way to mitigate such risk is requesting the presentation  by the developer of a performance bond.

Performance

Renewable sources, especially wind and solar, are intermittent and, therefore, may generate contractual exposures for the offtaker or for the generator, depending on the contract structure. The Brazilian power market has been mitigating this risk by contracting an energy broker that may provide the remaining power when the renewable sources included in the corporate PPA do not perform as expected. Additionally, corporate PPAs in Brazil generally contain specific provisions regarding supply obligations and guarantees.

Submarket

Brazilian power market is divided into four submarkets, which may present different spot prices among them. Therefore, if the consumer is in a different submarket of the generator, even if the amount produced is the same as the amount consumed, there may be some positive or negative amounts that need to be settled. This difference between submarket prices may create risks for both the offtaker and the generator. In order to minimize such risks one strategy is purchasing electricity from a generator that is located in the same submarket of the offtaker; this alternative, however, is not always available due to certain conditions, including technical and geographical ones. An alternative that has been used by the power market to address this matter is including energy brokers in the PPA contractual structure to manage the submarket risk, due to their diversified portfolio. Another alternative is including provisions that anticipate the costs of submarket swaps, so both parties have more predictability and may better allocate their risks. 

Last modified 16 Dec 2020

The green energy boom in Chile is mainly explained by the internal conditions of our country, where an investment-friendly business environment is combined with policies and actions of the authority and civil society, which have given a strong signal to facilitate and mobilize towards green energy generation and consumption.

This has allowed that by 2020 a little more than 20 percent of the energy that is supplied to the national electricity system comes from NCRE.

At the beginning of the year 2020, the main challenges to work on in relation to NCRE were: modification of the green tax, regulating the development of diesel power plants, the storage of ERNC and the robustness of transmission lines, among others.

On January 24, 2020, the modification of the green taxes was made official, after 17 months of discussion in the National Congress. The main effect of the modification is that all polluting sources that exceed the threshold established in the Law (100 or more annual tons of particulate material or 25,000 or more annual tons of CO2) must pay this tax.

Before the reform, the tax only applied to the thermal power installed in boilers and turbines, and with the reform it will be imposed directly on the emission of contaminants.

Regulating the development of diesel plants remains a challenge, as it is still possible to build plants of this nature on a large scale (to date there are 550 MW under construction and 3,000 MW in operation), which is not in line with the Government's plan to have a greener energy matrix. 

In relation to NCRE storage, several companies are currently developing such projects, such as Cerro Dominador and Embalse Virtual.

The strengthening of the transmission system is a key part that will allow the channelling of clean energy to the areas of highest consumption. Every year the Government approves plans to expand the transmission lines, and has made large investments in this area, so it is a challenge that is in full development. 

Last modified 16 Dec 2020

Social issues with ethnic communities

As a multicultural country, Colombian natural resources used to produce clean energy are almost always around or in the territory of ethnic communities (i.e. wind in La Guajira, hydroelectric projects in Antioquia). Before undertaking any activity of exploration or exploitation of natural resources, which are on the lands of these peoples, a prior consultation (consulta previa) should be carried out with the affected community to guarantees their effective participation, through a scenario aimed at guaranteeing their fundamental rights. This process might take longer than expected and without its achievement it is impossible to obtain the permits and licenses required for the project. Projects which have successfully achieved this process have hired NGOs, and private agencies to advise them on the process. 

Environmental issues

As a rule, the use of exploitation of renewable natural resources requires the prior granting of a permit, authorization or concession by the competent environmental authority. In certain parts of Colombia, environmental entities take a lot of time to analyze and issue environmental licenses. It is important to file license and permits papers as soon a feasible in order to avoid delays.

Interconnection procedure

Domestic law enables vertical integration between generation, distribution and retailing activities. Thus, the grid owner might have an incentive to obstruct access. Additionally, grid technical conditions might impose an additional challenge for the interconnection of a new renewable generation unit because in such cases the regulator might require a prior investment from the grid owner to update or expand the grid before authorizing the interconnection.

Last modified 16 Dec 2020

The governmental support in the Czech Republic which has been enormous before 2010 is since then being reduced and vast majority of "green bonuses" is no longer effective (exceptions are listed in Subsidies). Also the green energy is now being further taxed.

Further issue is quite lengthy and complicated building process in the Czech Republic (i.e. obtaining all necessary permits etc.).

Last modified 26 Jul 2021

The major challenge for businesses adopting green energy is a lack of comprehensive regulation of cPPAs. As the concept is new to the Ethiopian energy market, sector-specific incentives are not available, and this deters corporations from adopting green energy policies. This challenge could be overcome by formulating laws and regulation specifically addressing cPPAs and providing incentives for those companies ready to meet their energy needs from renewable energy sources.  

Last modified 18 Feb 2021

Traditionally, industrial companies and municipalities in Finland have secured their energy needs through the so-called "mankala-structure" where the companies and municipalities are direct or indirect shareholders in hydro or nuclear energy companies.

The Mankala-structure is a special cost price model where owners of a joint energy company have the right to buy the produced energy at cost price and are proportionally responsible for the costs. Mankala companies are non-profit companies with the sole purpose of producing energy for its owners at cost price. The owners benefit by using the received energy for their own industry or by re-selling it forward to third-party customers.

In Finland renewable energy sources represent about 40% of energy end-consumption. The aim set by the Finnish government in the National Energy and Climate Strategy to 2030 is to increase the use of renewable energy so that during the 2020s its share in energy end-consumption rises to more than 50%. 

Last modified 16 Dec 2020

The challenges for corporations in adopting green energy are largely of a financial nature. In general, renewable energy generators are only willing to sell renewable electricity to corporations by way of "direct marketing", where they can be certain they will receive the market price in return for the electricity they provide, as well as the financial support payment (which a generator would otherwise receive from the network operator for the utilisation of the "market premium" (for new installations)). For these reasons, and until market prices of renewable installations reach (or at least come close to) grid parity, corporations are often reluctant to use corporate PPAs unless they are specifically willing to pay a higher price for green labelled energy.    

However, as financial support under the "market premium" method has reduced substantially since the introduction of a tendering process to determine the "market premium" (with support of 0 Euroct./kWh in some of the recent offshore wind auctions), it is likely that corporate PPAs will start to play a greater role for renewable energy generators and corporate buyers. Also, the development of standardised documentation and potential amendments to the prohibition of multiple sales (Doppelvermarktungsverbot) under the German Renewable Energy Act may further support the development of this market.

Last modified 16 Dec 2020

The main factors hindering the spread of corporate PPAs in Italy are, inter alia: (i) the absence of any incentives; (ii) the absence of support to the aggregation of demand; and (iii) the low discounts offered by awarded applicants in capacity auctions under the New RES Decree.

In addition, one of the major challenges that needs to be addressed is the streamlining of the planning and authorisation process, which has been burdensome due to the highly fragmented regional procedures and different levels of support from local authorities, especially in some of the regions that boast the highest levels of solar irradiation.

Last modified 16 Dec 2020

  • Green energy sources tend to be intermittent/unreliable such that corporations are rarely able to rely exclusively on a green solution to meet their power needs. This is particularly the case for solar power, which, in the absence of affordable storage facilities, can only provide a solution during daylight hours. Many corporates adopt a hybrid approach and will also explore how to use net-metering to sell back excess supply.
  • Most technologies require significant space to be efficiently developed. Unless corporates or generating entities own their premises or land on which to develop a generating plant, corporations and/or generating entities have to lease or acquire the required space. This can be a significant challenge, particularly for foreign-owned corporations. Acquisition of land for the purposes of generating power also requires significant engagement with the local community to ensure the investment/development is well received.
  • High upfront costs for most technologies in terms of equipment and personnel. Difficulty with logistics and some supply networks can mean equipment is difficult to maintain, and spares may not be readily available or properly stored.
  • The corporate PPA market is only now opening up in Kenya, and the regulatory controls are untested and somewhat ambiguous. It is seemingly likely that regulatory reform will follow in the next few years as stakeholders interpret the applicable legislation. This uncertain and/or changing regulatory landscape can sometimes make it difficult for corporates to commit to PPAs with substantial terms.   
  • Emerging local capacity in the development, operation and maintenance sectors coupled with obligations to develop and use local content.
  • Proper enforcement of standards and regulations.  Particularly in the solar space, there is a proliferation of sub-standard solar energy technologies and equipment. There is also a lack of availability of affordable power storage solutions.

Interventions

  • For some time, the Kenya Revenue Authority offered tax exemptions for certain solar-PV equipment (though this was reviewed in 2020). Permanent exemptions which applied to a wider range of technologies would assist in managing the substantial up-front costs.
  • The Energy Act now permits net metering and as a means of opening the market to corporates who may be considering a solar solution, but were previously unable to sell excess generated power back to the grid. Further improvements on this issue would see the government offer/regulate low-cost wheeling arrangements to facilitate wheeling of power where there is excess supply from a corporate.
  • KPLC could explore how to use virtual PPAs and sleeved PPAs to increase revenue and maintain market position.
  • Regular review of standards for energy technologies and equipment and genuine and consistent enforcement of regulations and standards.
  • Implementation of programs and initiatives to develop local capacity. Incentives could also be offered to corporates to provide training and/or upskill individuals.

Last modified 18 Feb 2021

The main problem is that the current administration is not in favour of private participation in the energy industry and would like to have the State-owned CFE controlling the market. There have not been any changes in the laws, yet, but the is new policy has created uncertainty. However, the market since the reform of 2013 has evolved to an open market structure with solid regulations, and it is unlikely that this new government could change the rules to give back to CFE an integrated monopoly. 

For instance, most of the Self-Supply projects are renewables. The regulations allow that these projects have a cost benefit in the transmission and distribution of electricity. The new government has indicated that these benefits are currently under review and may be terminated. However, there are legal mechanisms available to fight against such measures.

Last modified 16 Dec 2020

  • Some of the implementing decrees of law No. 13-09 have not yet come into force, in particular the ministerial order identifying the map of areas for the development of solar projects. Therefore, no solar project can be authorized by the Ministry.
  • The Moroccan national electricity grid has reached its capacity limits in certain regions.
  • It is not possible today to sell electricity to the distributors connected to the medium-voltage grid.

These challenges are currently addressed in the draft reform of Law No. 13-09 (see Regulatory changes).

Last modified 10 Feb 2021

Some of the challenges to corporations adopting green energy are as follows:

Technical

  • lack of capacity to install, operate and maintain green energy systems;
  • poor retention of trained personnel in the national renewable energy sector;
  • the lack of local training, which jeopardises the operation of small-scale projects scattered all over the country.

Political

  • consolidation of the political environment;
  • lack of a political and strategic framework to motivate the development of green energy; and
  • lack of inter-ministry coordination.

Financial

  • lack of involvement by the banking sector in promotion, assessment and implementation of green energy programs;
  • no government instruments to improve the credit and mitigate the risk of credit by third parties; and
  • need for revision of taxes and import duties on equipment intended to exploit green energy.

Regulatory

  • insufficient green energy regulatory framework; and
  • poor harmonization of the existing regulatory framework with the future regulatory framework.

These challenges can be overcome by:

  • institutional capacity building, both of public and private institutions’ human capital;
  • improvement of the regulatory framework, in order to make it more enforceable and effective;
  • granting tax benefits, to make the acquisition of green energy equipment easier;
  • establishment of financing schemes, to provide access to easy credit;
  • education, training and establishment of good working conditions.

Last modified 1 Feb 2021

The main challenge in the Netherlands is meeting the EU renewable targets and the binding target for the reduction of greenhouse gas emissions as ordered by the Supreme Court in the Urgenda Case. These challenges result in a vast demand for renewable, green energy.

The development of wind and solar parks is facing  limited availability of sites due to spatial planning restrictions. Because the Netherlands is a densely populated country, a conflict of interest soon arises with primarily residents of the surrounding areas. This is why new wind farms are mainly located at sea. For onshore projects, the solution is sought in compulsory participation, which must be offered to local residents. These forms of participation obviously make the projects more complex.

Last modified 16 Dec 2020

One of the key challenges is regulatory uncertainty where the system and targets for renewable energy are reviewed on a regular basis. Norway will discontinue its participation in the Swedish-Norwegian electricity certificate system from 2021.

A major technical challenge is constituted by constraints in grid capacity in certain regions of Norway, which again links into export capability for excess power. With the majority of its power production coming from hydro-power and some of the world's best wind resources, Norway is ideally suited to balance between wind power and hydropower and serve as the "battery of Europe".

Norway is looking to potentially open up massive new areas for renewables projects in the next decade (on-shore and off-shore wind), but framework and any support schemes are presently uncertain. 

No projects are currently banked in the market on the basis of el-certificate values.

Last modified 16 Dec 2020

Politically and financially, Peru is currently facing a scenario of surplus installed capacity which, to date, reaches almost 30% pre Covid-19 (the international recommended level is around 30%). Energy prices are still dropping due to the Covid-19 crisis and investments in the sector have followed that same trend, which is expected to gradually reverse towards 2021 as the mining sector is recovering from plummeting metal prices and large mining projects.

Despite this, RER projects granted by the government during the 2010-2016 term are scheduled to start operations between 2017-2021. The guaranteed revenue scheme committed by the government will ensure profitability.

Towards 2023, appetite for new energy investments should resume and grow thanks to increasing energy demand levels Investment in hydropower is highly likely. However, viability of RER projects will greatly depend on (i) continued government support and the development and introduction of new technologies that will allow green energy to compete with other cheaper sources of energy.

One of the most relevant obstacles faced by energy projects is the process of obtaining permits and approvals. The government recently amended the regulatory framework with the goal of making administrative proceedings more efficient. However, the real challenge is implementing these changes.

Finally, the so-called “social license” is also one of the most challenging issues for energy projects. Not only do energy projects need to meet regulations but they also need to seek social acceptance. Establishing workable relationships with the local population is key to any energy project success.

Last modified 16 Dec 2020

In recent years, there has been uncertainty and debate regarding the licensing and registration requirements for generators (particularly regarding whether certain own use, embedded generation and de minimis exemptions were applicable or not). However, recent regulatory updates (as recent as April this year), have introduced a series of exemptions for generators from licensing (as above) which has clarified the position substantially.

In addition, the Minister of Mineral Resources and Energy has approved that NERSA may process licence applications for the following self-generation facilities of above 1MW even if they are not in compliance with the Integrated Resource Plan, 2019 ("IRP 2019"):

  • a generation facility that is connected to the national grid, in circumstances in which the generation facility supplies electricity to a single customer and there is no wheeling of that electricity through the national grid; and/or
  • a generation facility that is connected to the national grid, in circumstances in which the generation facility is operated solely to supply a single customer or related customers by transporting electricity through the national grid where wheeling arrangements are in place between all affected parties.

Previously, if not in compliance with the IRP 2019, prospective applicants were required to obtain Ministerial approval for deviation from the IRP 2019 before applying to NERSA for a licence. This has, to some degree, simplified the process for applicants regarding the above facilities.

In addition to this, there was a fair amount of uncertainty around the role that energy or battery storage could play in the energy matrix in South Africa. Thankfully, the regulations on New Generation Capacity have further been amended, inter alia, to allow for the procurement of new generation capacity by other organs of state, active in the energy sector which specifically includes generation capacity derived from energy storage.

Last modified 16 Dec 2020

  • Plant development risk: Time-lag between closing the PPA and Commercial Operation Date (COD) of the plant. Parties may wish to ensure that the seller and the facility/works are insured throughout the construction period (and not only after commencement of the supply period (i.e. following COD).
  • Grid access congestion: There are currently signals of overcapacity in terms of connection permits and grid access, which is expected to continue in the medium term (see reference below to new regulations in this area).
  • Regulatory risk: Renewable energy legislation in Spain has suffered a series of drastic changes in the last eight years. Parties may wish to limit change in law coming into effect after the date of the agreement, and to exclude those changes in law which may be foreseeable (e.g. current proposals to reform grid access and connection rules and to introduce new regulation for the future energy remuneration subsidized regime).
  • Political risk: Government’s ambitious targets in terms of renewable energy capacity may imply in the medium-long term the so-called “cannibalization” effect and have a depressing impact on electricity market prices.
  • Price risk: Volatility in energy prices may result, in a long term contract, in an unforeseen market scenario that cause a substantial imbalance of the contract (together with the “cannibalization” effect mentioned above). The full impact of COVID-19 on electricity prices is yet to be seen. A solution could be the introduction of specific price review clauses for those extreme hardship imbalance scenarios.

Last modified 16 Dec 2020

Sweden's aim to establish a solely renewable energy power system is not without challenge both from a policy and regulatory perspective as well as operationally.

Policy and regulatory challenges include:

  • ensuring that market design is adequate enough to encourage the flexibility that renewable energy requires;
  • making sure that there is an adequate security of supply; and
  • ensuring that the current distribution and transmission infrastructure can adapt.

The operational system will also need to make changes to expand network infrastructure, ensure that systems are stable and balance the new forms of supply and demand given that the transmission infrastructure has been around for a long time.

There are a number of solutions to overcome these challenges that Sweden can look to, including exploring expanding areas of artificial intelligence, battery storage and battery storage. Transmission infrastructure will require modernisation to accommodate the additional renewable energy capacity which will vary in frequency when compare with more conventional energy sources. With the very quick build-out of wind power in Sweden, capacity shortage in the national grid has also become an issue. For some projects such as offshore wind power projects, the cost of connecting the project to the grid may become prohibitive.

Last modified 16 Dec 2020

  • Stipulation of, and regular review of, the Uganda Renewable Energy Feed-in Tariff for sales to the grid of electricity generated by renewable energy systems of up to a maximum capacity of 20Mw as a means of providing a fixed tariff based on levelized costs of production for a guaranteed period of time encourages predictability and transparency in determining the tariff.
  • Introduction of a Uniform System of Accounts (USoA) to enable the regulator easier assess an entity’s financial performance and foster an understanding of the cost of providing services in the industry for a fair and reasonable determination of electricity tariffs.  That is:
    • Considering that the electricity tariffs paid by customers are a composite of the costs incurred in the generation, transmission and distribution of electricity, availability of accurate and consistent information on the cost of providing the electricity supplied, through the USoA, simplifies tariff determination.
    • Due to ring-fencing rules, electricity consumers are protected from bearing undue costs that are attributed to other (non-electricity related) businesses that Electricity Regulatory Authority (ERA) licensed companies may be engaged.
  • The willingness by the Electricity Regulatory Authority to engage in bi-lateral discussions regarding applications enables investors to reach workable solutions where varying views are held.

Last modified 9 Feb 2021

There are a variety of challenges facing the adoption of renewable energy by corporates in the Middle East, including:

  • Conservatism - renewable energy is a relatively new development in the region and there has been a reluctance to move away from traditional conventional (hydrocarbon fuelled) generation. However, this attitude is changing. Nevertheless, it may take some time for some countries to fully embrace renewables and for corporates to trust that renewable energy can meet their energy needs in a reliable and affordable manner.
  • Subsidised markets - a potential issue in some Middle Eastern countries is that big corporate energy consumers subsidise the cost of energy for smaller businesses and/or private consumers through paying higher tariffs. Should the big corporates enter into private PPAs and effectively go "off-grid", this will result in less income for governments to provide these subsidies. As a result, some Middle Eastern governments have been reluctant to allow large scale self-generation projects. Electricity subsidies are however either being reviewed, reduced or removed in numerous Middle Eastern countries, so this issue may fall away.
  • Financial incentives - electricity prices are already low in many countries across the Middle East. This presents a challenge to the corporate PPA market, as the prices being offered by developers to corporate off-takers must be attractive enough to encourage them to take the risk of investing in a private renewable energy facility. Low market prices also present a test to the developers as they want to see a certain level of profitability in the projects they undertake. Finding the balance between offering a compelling price to a corporate off-taker and making an acceptable profit, could be challenging. As mentioned above, there are indications that electricity subsidies will be reduced in some Middle Eastern countries which may mean this balance becomes easier to achieve as standard electricity prices increase.
  • Grid suitability - some Middle Eastern countries do not have transmission systems (or grid operators) able to handle a large amount of intermittent renewable energy generation. Whilst some countries have already upgraded their grids to deal with additional intermittent generation (Jordan with its 'Green Corridor', for example), this will be an ongoing task as more capacity is added to the grids (at both local and national levels).
  • Regulations - the Middle East is dominated by markets where a government owned utility has a monopoly on the offtake of electricity. Only where there are specific laws and regulations allowing for it, may self-generation and corporate offtake projects be possible. Regulations and law enabling the export and sale of excess power to the grid are quite limited in some countries (such as Saudi Arabia), meaning privately developed projects might be a less attractive proposition where power unconsumed cannot be sold.
  • Funding issues - given the Middle Eastern corporate PPA market is relatively new, finding banks willing to lend directly to projects with somewhat untested structures may prove difficult. This will particularly be the case with international banks where they do not already have a relationship with the developer or corporate. In addition, corporate off-takers might not be willing and or able to give the type of payment security that lenders typically expect on non-limited recourse financed energy projects in the region. It may therefore be that alternative sources of finance and/or funding arrangements need to be considered.

Last modified 21 Jan 2021

Brexit sheds legal and contractual uncertainties on the future of PPAs in GB. It remains unclear whether the EU Clean Energy Package will be implemented or whether GB will adopt a new regulatory framework. In the case of a hard Brexit, where GB leaves both the EU and EEA, GB would be released from its renewable energy targets under the Renewable Energy Directive (Directive 2009/28/EC and Directive (EU) 2018/2001) and from EU state aid restrictions.

Nevertheless, the Government has indicated that it will transpose existing EU state aid law into domestic law upon withdrawal by virtue of an implementing act under the European Union (Withdrawal) Act 2018. Under the current draft State Aid (EU Exit) Regulations 2019, laid before Parliament on 21 January 2019, the Competition and Markets Authority (CMA) will be the responsible authority for EU state aid provisions and decisions implemented into UK law. The CMA will generally continue the role of the Commission in its authorization and investigation powers, and state aid approved by the Commission or given under a block exemption prior to Brexit will not need to be approved again by the CMA.

The Government has prepared the Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) (Amendment) (EU Exit) Regulations 2018, which upon a no-deal withdrawal will ensure that GoOs issued in EU Member States continue to be recognised in GB. Furthermore, GB will continue to issue GoOs to eligible GB renewable generators (REGOs).

A notice issued by the Commission dated 7 March 2018, however, states that following a no-deal withdrawal, GoOs issued in GB will cease to be recognised in the EU-27 Member States.

More generally, EU energy law will cease to apply to GB and its electricity markets will be decoupled from the Internal Energy Market (IEM), which means that cross-border flows of electricity will no longer be governed by EU legislation. GB has sought to mitigate this impact by enacting the European Union (Withdrawal) Act 2018, which will transpose all EU law into UK national law. In the case of a no-deal withdrawal, however, the inability to enforce any necessary cooperation with EU institutions may render these laws ineffective to an extent.

In summary, there may be some scope for GB to diverge from the current EU renewables regime over time, however, GB may be expected to voluntarily align with this, and such development may be covered by a future cooperation or trade agreement.

Last modified 16 Dec 2020

Market Price Risk

Corporate buyers entering into a Virtual PPA face the risk that wholesale market prices for energy will decline below the contract price or strike price such that significant amounts will be payable by the corporate buyer to the generator.  Virtual PPAs may include terms which require the generator to share in potential revenues or limit potential market price risk with a floor or a collar.      

Counterparty Credit Risk

Many generators are today offering Virtual PPAs as to a portion of a renewable generation project such that the project will by necessity have other customers. The impact of a breach by such other customer could put the economic viability of the project in question or prompt action by the financing parties. Thus, in addition to the credit risk of the generator, each customer bears some credit risk as to the other customers of the project.   

Changing Regulation

The regulation of the energy industry in the US continues to change based on high-level policy considerations such as the appropriate level of regulation or the integration of new technologies.  Frequent changes can have a negative impact on development. For example, there are certain federal incentives that benefit owners of renewable generation assets (known as Production Tax Credits or PTCs and the Investment Tax Credits or ITCs). Monetizing these existing incentives represents significant economic value which has spurred development over time.  However, they are typically extended or reauthorized for a limited term of a few years such that generators are often racing the existing sunset date and development decreases as they approach.      

Accounting Treatment

Virtual PPAs may result in mark-to-market or derivative accounting treatment on the books of the relevant corporate buyer. 

Technology Risk

By electing to purchase power from a specific generation facility under a Virtual PPA or a traditional PPA, the reliability of supply to that corporate buyer then becomes subject to the performance of the particular technology and equipment selected and maintained by the generator. 

Last modified 24 Mar 2021

Angola

Angola

To what extent are corporate PPAs presently deployed and what sort of structure do they take?

Corporate PPAs remain uncommon in Angola. 

Article 48 of the Electricity General Law provides that outside the scope of the public electric system, the conditions of sale of electric energy will be established by the parties.

Article 15 of the Executive Decree No. 122/19 of May 24 (electric energy sales tariffs) provides special arrangements for the sale of electricity by means of special or bilateral contracts between producers and distributors and those with final customers, under the terms set out in the Tariff Regulations (Presidential Decree No. 4/11 of January 6) shall be authorized by an order of the Minister of Energy and Waters, after hearing the regulatory authority.

All the contracts with National Transportation Network ("RNT" as a sole buyer must comply with certain requirements specified in Article 11 of the Presidential Decree No. 4/11 of January 6 as amended by Article 11 of the Presidential Decree 178/20 of June 25, in order to their prices are allocated to tariffs.

Do the country's regulators allow corporate owners to purchase (1) directly from a facility, or (2) from a choice of suppliers?

In accordance with Article 11 of the General Electricity Law, the use of the facilities and networks that incorporate the Public Electricity System is allowed under the conditions provided for in the aforementioned regulation or agreed between the interested parties and their holders, as long as the supervisory body approves it after prior validation by the regulatory authority.

Hence, corporate owners are allowed to purchase directly from a facility or a choice of suppliers, as long as it has been approved by the supervisory body and has effectively gone through a prior validation from the regulatory authority.

Other than the generator and the off-taker, are any third parties commonly party to the PPA structure (e.g. a utility or other market agent)?

In addition to the electrical energy provided by the Company ENDE E.P (National Electricity Distribution Company) that comes from hydraulic dams and private generators, so far, there are no other third parties as a common party to the cPPA structure.

Is a generator permitted to sell electricity directly to an end user? If so, do they require a licence or other form of authorization?

As previously stated, Article 48 of the Electricity General Law provides that outside the scope of the public electric system, the conditions of sale of electric energy will be established by the parties.

Last modified 9 Feb 2021

Angola

Angola

What are some of the technical, political, financial or regulatory challenges to corporations adopting green energy in the short/medium term in your country and how have these challenges been overcome (or how can they be overcome)?

More incentives and benefits need to be created for companies that want to implement green energy systems. Facilitating the process of importing and accessing currencies to pay for equipment to implement the projects related to renewable energy is necessary. Governments should create incentives for companies that are implemented across the country, thereby creating employment and facilitating greater acceptance of new technologies in rural areas.

Last modified 9 Feb 2021

Angola

Angola

Are there any anticipated regulatory changes which will alter the regulatory landscape for corporate green energy and corporate PPAs?

International development partners are providing technical support to the Angolan government to establish a regulatory framework which includes negotiating power purchase agreements with independent power producers (IPPs) and design of a feed-in-tariff scheme for renewables.

Last modified 9 Feb 2021

Angola

Angola

What is the corporate appetite for green energy, including any political or financial incentives available to corporates to adopt green energy?

Even though national and international companies have been showing interest to develop green energy structures in Angola, this is still something that has to be well studied and thought through it. However, there are already small dimensions of solar energy structures being developed, for example, but only for particular purposes.

What are the key local advantages of the corporate PPA model which can benefit our clients?

The key local advantage of the corporate PPA model in Angola is energy security and easier access to financing having the corporate PPA as collateral.

What subsidies are applicable to the generation and sale of renewable energy?

This information has not been made public.

Does your country implement a national support scheme with tradable green certificates (such as guarantees of origins)?

Not yet, as green energy has not yet been implemented.

Last modified 9 Feb 2021

Angola

Angola

To the extent corporate PPAs are deployed, how are prices, terms and risks affected?

Do prices tend to be floating or fixed?

According to Article 26 of the Presidential Decree 178/20 of June 25, the tariff structure is applied by the RNT concessionaire and by the distribution companies to users connected to their networks. Along these lines, this same diploma, on its article 27, establishes that the tariff structure reflects the costs to which users give rise, according to the characteristics of consumption and the level of tension to which they are connected, regardless of their social or legal character and the final destination give to the energy consumed. 

Hence, the prices are fixed considering the elements above mentioned.

What term is typically agreed for the PPAs?

There is not a fixed-term for cPPAs it all depends on the activity to be exercised. However, it is important to mention that the tariff regime is, in general terms, in force in a four-year tariff regime. Alongside with that, the tariff period is defined by a specific diploma by the Sector Regulatory Entity, which must be multiannual, as established on Article 28-A of the Presidential Decree 178/20 of June 25.

Are the PPAs take-or-pay or limited volume?

Not applicable.

Are there any other typical risks?

Not applicable.

To the extent corporate PPAs are deployed, in whose favour will the risks typically be balanced?

Volume risk

The risk is born by those who not comply with rule applicable to the specific situation.

Change in law

Usually, when changing legislation, users and distributors are given a period to prepare and adapt to this mentioned change of legislation. Hence, when there is a change in law non complied with, the risk is born by those who have not complied with the rule in place.

Increase / reduction of benefits

Again, similar to the change in law, the risk is born by those who not comply with rule applicable to the specific situation.

Market liberalization (if applicable)

Not applicable.

Credit risk

The risk is born by those who not comply with rule applicable to the specific situation.

Imbalance power risk

The risk is born by those who not comply with rule applicable to the specific situation.

Production profile risk

The risk is born by those who not comply with rule applicable to the specific situation.

Last modified 9 Feb 2021

Angola

Angola

Does your country operate a balancing responsibility scheme?

Not applicable.

If your country operates a balancing responsibility scheme, who is the balancing authority and do the generator and offtaker typically undertake balancing themselves?

Not applicable. 

Last modified 9 Feb 2021

Angola

Angola

What significant transactions/deals have taken place in the last 12-18 months?

Laúca Hydroelectric Power Plant

According to the Government, Laúca Hydroelectric Power Plant (“AH Laúca”) is the largest work in the country today. The Project was commissioned by the Angolan Executive, represented by the Ministry of Energy and Water, and is carried out by ODEBRECHT. COBA and LA MAYER carry out the supervision of the implementation of the project. When AH Laúca is 100% operational, it will produce more than twice as much energy as the other two dams already operating on the Kwanza River. This energy potential will serve 8 million people. AH Laúca will produce 8,643 GWh (gigawatts) of electricity, representing an installed capacity of 2,070 MW (megawatts).

The realization of the project demands great infrastructure support. Because of this, AH Laúca is today a city that is composed by: Leisure area; Sports area; Accommodations; Kitchen and Cafeterias and Medical Center.

AH Laúca is a pole of job and income generation. The project is also committed to providing opportunities for national talent. Today, the enterprise has 8,458 Members. Of these, 8,035 are national, which represents 95% of the entire productive force involved in the execution of the work. The remaining 423 are expatriates, a number that represents 5% of total members.

Through the Acreditar Program, the project offers basic and specific training to AH Laúca Members and also to the residents of the communities surrounding the construction site.

AH Laúca is 86% ahead of Civil Works, 72% ahead of Electromechanical Assembly and 14% in the Energy Transport System. Always overcoming challenges and fulfilling all the goals set with safety, quality and productivity.

2nd Hydroelectric Power Plant of Cambambe and Dam Alignment

With the conclusion of the Cambambe 2nd Power Station and the Dam Raising, it was possible to obtain an additional power of 780MW. This power is helping to reduce the energy supply deficit in the Provinces of Luanda, Kwanza Sul, Malanje, Uige, Kwanza Norte and Bengo.

It will also allow the interconnection of the North-Central Systems with the Benguela Province link, thus reducing production costs and the consumption of diesel for energy production.

More than 10,000 construction posts have been created as part of the temporary work in the rehabilitation, modernization and extension of the hydroelectric complex. The construction owner was GAMEK (Gabinete de Aproveitamento do Médio Kwanza) and the contractor was ODEBRECTH.

Solar village program

The main objective of the Solar Village Programme is electrification, through the installation of autonomous solar photovoltaic systems (isolated) in infrastructures Social, including: Schools; Medical Posts; Police Posts; Administrative Buildings; and, Social Jangos, including Public Lighting Posts.

In the 1st phase of the Programme, awarded to the company Elektra Electricidade e Águas, Lda, 11 localities were selected from 4 Provinces in the country: Bié, Kuando Kubango, Malange and Moxico. This phase has been completed since 2011, with a total of 156,660 Wp of 42 systems and 70 public lighting posts implemented.

In some cases, a system provides electricity to more than one infrastructure. So far, 50 infrastructures have benefited from the electricity supply, namely: 15 schools, 18 medical posts, 1 maternity ward, 1 police station, 1 police station, 9 administrative residences, 1 nurse's residence, 3 administrations.

In the 2nd phase of the Solar Village Programme, four companies were selected for the installation of a total of 75 systems and 160 streetlights.

As part of the 3rd phase of the Solar Village Programme, the project has already started after the Auto de Consignation signed with the Company LTP Energias S.A. The project will benefit the provinces of Kwanza Sul, Cuando Cubango and Lunda Sul, whose aim is to supply electricity to the communities with Solar Photovoltaic Systems of Auto-consumption Kits and Public Photovoltaic Lighting.

It is part of the energy and water sector action plan 2018-2002, to continue the Solar Village Programme and to ensure adequate maintenance of its infrastructure and test a new concept of a 100% solar mini network, based on batteries, to electrify the most isolated municipality headquarters, avoiding fuel logistics.

What transactions/deals are anticipated to come to market in the next 12-18 months?

See Past transactions

Last modified 9 Feb 2021