Incentives and benefits

In observations drawn from its 2021 Industry Survey data, BRC-A identified significant demand for corporate PPAs and notable resilience in the Australian market throughout the past two years, despite an anticipated downturn as a result of COVID-19. BRC-A ascribe the resilience of the Australian market to sustainability drivers, as almost two-thirds of respondents indicated non-price drivers as motivating their interest in PPAs.¹

Further, renewables can deliver cheaper energy and help businesses to manage the volatility associated with electricity prices and supply in Australia, giving them more control over their energy supply.

Corporate PPAs can also help in supporting carbon reduction commitments.

Major energy users can arrange to acquire renewable energy certificates under the RET as a part of a PPA arrangement. Liable parties (primarily electricity retailers) are required to surrender these certificates each year or risk facing financial penalties and shortfall charges. While not exclusive to the corporate PPA model, the scheme will add value to a PPA deal (provided the client is a liable party).

Footnotes

[1] BRC-A State of the Market Report 2021 (n 5) 1.

Generally speaking, PPAs make brands more sustainable and greener, gives energy and price security, reduces the risks associated with electricity sales and purchases as well as allowing for participation in greater market opportunities. [1]

[1] Next, ‘What is a PPA?’ accessed 11 March 2020

Entering into a PPA may be advantageous for companies in various ways. First, corporate PPAs may help a company achieve its sustainability goals. Second, a PPA can allow companies to enter into a long term electricity supply agreement with stable (often even fixed) electricity prices. This creates stability in a company’s cost structure and can potentially be used as a tool for hedging. Finally, a corporate PPA allows undertakings to be supplied with (renewable) electricity at a very attractive price. The supplier of electricity, on the other hand, gets the assurance that he will be able to market its electricity for a long time at a stable price (thereby increasing the bankability of a renewable energy project).

Currently, there are no corporate PPAs in Botswana.

Due to Brazil’s natural characteristics (hydrology, availability of solar radiations, strength of the winds), the country is a global leader in the generation of power from renewable sources. This vast experience of the Brazilian market contributed to a business environment with great diversification of players, business models and risk appetite which presents opportunities to clients with several business profiles and objectives. 

The structure of the PPAs is flexible and there are no regulations that establish restrictions to the parties, who can agree the more convenient commercial conditions considering the nature and special needs of the relevant business.

From an energy security perspective, all the energy generated is injected to a system interconnected nationwide. This means that any energy supply will have a back-up, giving the system stability and security.

Regarding PPAs, there is a very sophisticated local market with the best global practices, applying market standard indexing formulas to be defined on the relevant price variables.

• State, private and public-private partnerships may generate, transmit, distribute and trade electricity without requiring a concession.
• There are no legal restrictions for long-term PPAs executed between participants of the Wholesale Energy Market (namely generators and retailing companies).
• Contract law concept of hardship can be disapply contractually by parties.
• The activity of selling energy in the wholesale market does not require a license but all generators must be registered before a Public Register administered by the Superintendence of Public Utilities.
• Law 1819 of 2016 created the carbon tax in Colombia. Furthermore, Decree 926 of 2017 created the carbon neutrality mechanism and pursuant to that regulation, a renowable energy project qualifies as an initiative eligible for selling carbon reduction credits.
• There are no legal restrictions for long-term CPPAs under a self-generation scheme where the IPP is the owner of the assets. When using RSE under a self-generation scheme, surplus energy can be negotiated as energy credits. The Law also provides for the establishment of a Management Fund, which may finance all or part of the RSE projects for residential sectors at levels 1, 2, and 3.
• Law 1715 of 2014 includes tax benefits as explained in Subsidies.

The nature of the benefits arising from PPAs can be diverse; on the customer side, these include mainly long-term fixation of electricity costs, minimisation of the risk of electricity price fluctuations and a guarantee of the purchase of electricity from renewable sources. Thanks to the PPAs, the producers of electricity from renewable energy sources secure a predictable income in the long term, which guarantees them a return on investment and the possibility of obtaining bank financing.

CPPAs benefit from the flexibility to agree on pricing as there is no restrictions to be imposed by the government.

Moreover, RECs are increasing in value and tradability; so generators and corporates are currently enjoying this benefit.

Companies that operate using the net metering scheme or self-consumption scheme are exempt from paying integration fees up to a capacity of 10 MW. This used to be set at 1 MW.

The main advantage for private actors that wish to deploy cPPAs is the possibility of supplying electricity off-grid. Currently, 44% of the population has access to electricity, 11% of which is sourced from off-grid electrification. This leaves more than half of the population in need of electricity, creating a potential market for the private sectors to engage in generation and off-grid transmission and distribution of electricity as the government plans to source 35% the access from off-grid transmission and distribution by 2025.[1] Additionally, investment in the area of electricity generation, transmission and distribution will make investors eligible for exemption from Business Income Tax for up to five years. Moreover, loss incurred during the income tax exemption period can be carried forward for half of the exemption period after expiry, the maximum limit being five income tax period. Customs duty exemptions are also applicable to investors in the energy sector.

[1] National Electrification Program 2.0 Integrated Planning for Universal Access

Local advantages in Finland regarding the use of PPAs include favourable wind conditions, large share of unused land, net power deficit and governmental goal to reach full coal exit by 2030 and good security of the transmission grid. Finland is also part of the Nordic wholesale electricity market (Nord Pool), which includes the Nordic countries and the Baltic countries. The Nord Pool enables sale and purchase of electricity between the Nordic countries as well as day-ahead and intraday trading, clearing and settlement, data and compliance. The power grids in the Nordic countries are interconnected; Finland is in direct contact with the system of Sweden, Norway, Estonia and Russia. In 2022 Finland ceased electricity imports from Russia.

Further, according to Transparency Int., Finland is the third least-corrupt nation, which provides a strong basis for large-scale projects.

Increasing interest for green hydrogen (and P2X) investments in Finland drive the demand for new green energy PPAs for P2X developers.

The new Governmental Programme brings the green electricity distributed via public EV charging points to the scope of traffic sectors’ blending mandate, creating a market for green electricity based green fuel tickets.

The key local advantage of the corporate PPA model in France is in particular the stability these contracts provide by their fixed price for a long term contract, which protects against fluctuation of energy prices. Corporate PPAs also allows companies to achieve their goals in terms of renewable energy supply. 

The corporate PPA model enables German corporations to be recognised for their renewable energy achievements, potentially giving rise to reputational benefits. Corporate PPAs may also enable corporations to improve their ecological footprint and assist them to meet their sustainability commitments.

• Greek banks are playing a key role, as they are encouraging customers to establish PPAs by offering low interest rates as an incentive, though they are still not as favourable as those for subsidised projects.

• A Green Pool model proposed by the Ministry of Environment and Energy for the European Commission’s approval, will have the dual goal of setting energy costs for eligible industries at competitive price points and will boost energy generation through PPAs. The Green Pool scheme, once implemented, is expected to open a large-scale PPA market in Greece.

All EU Member States are obliged to have a Guarantee of Origin (GO) scheme for renewable source electricity. A GO guarantees that 1 MWh of electricity was generated using renewable energy sources. These are tradeable certificates and do not necessarily follow flows of energy, a characteristic which makes them well suited to use in conjunction with financial/virtual cPPAs. In Ireland, the Single Electricity Market Operator (SEMO) is the body that issues GOs to generators and it is a member of the Association of Issuing Bodies that provides a standardised system. Corporates who purchase GOs from generators may deliver such GOs to their energy suppliers to demonstrate for the purposes of SEMO’s annual fuel mix disclosure that the supplier has supplied a unit of renewable electricity. The corporate may also use a cancellation statement as evidence in the case of audit etc. that it has consumed the relevant renewable energy.

In Ireland, generators that participate in support schemes such as REFIT and RESS may not receive GOs.

The primary benefits of the corporate PPA model deployed in Italy are:

• the take-or-pay mechanism, which allows all the renewable energy produced by the plant will be purchased by the buyer;
• certainty of future cash flows for the purchaser.

As the corporate PPAs market in Kenya is yet to be widely developed, the advantages of using this model tend to mirror the advantages of corporate PPAs on a general level:

• energy security (particularly reduction of black/brown outs and surges if direct-wire solutions are used);
• discretion to use specific energy sources or exclusively renewable energy as a means of satisfying CSR requirements;
• avoiding high (and increasing) costs of power supply from a state-owned utility and/or passing on the pricing risk;
• for direct-wire solutions, excess power sold back to the grid may create a source of revenue; and
• direct-wire PPAs may be the only means of generating and accessing in some instances as the national transmission network does not always cater for very remote connections. 

Under the Self-Supply scheme, the most beneficial aspect is price. Renewable developers have been able to offer significant discounted prices to the standard CFE end user price.

For projects post the 2013 energy reform, where the Self-Supply scheme is no longer available, large consumers are still looking, first to comply with the clean energy minimum consumption requirements; second, to obtain lower prices from renewable sources; third, to use in their advertisement that they are a “clean energy user”. Finally, but not less important, companies are looking for reliability in the supply.  

The price is freely agreed by the parties and is not determined by the law (no feed-in tariffs).

Officially there is no PPA model as approved by the Government. The consolidated practice is that EDM is the principal off-taker has developed a PPA model which it uses to agree on the offtake.

Key advantages:

• Pricing flexibility – the government grants special tariffs in order to attract investment to power projects.
• Tax incentives – the relevant legislation grants special tax benefits in order to attract investment to power projects.
• Off taker credit support – to secure payment obligations under the PPA.
• Political risk cover – the government accepts political risk concerns raised by Concessionaire and Lenders; such cover is usually provided from multilateral development banks and other financial institutions.

In the Netherlands, the cPPA model provides several local advantages.

Pricing Stability

One of the most salient benefits is price stability. With the reduction in SDE++ subsidy support and the increasing CAPEX in renewable projects, cPPAs can offer a hedge against volatile energy prices. By fixing the price of renewable energy over an extended period, corporations can more accurately forecast their energy costs, contributing to a more stable financial planning process.

Flexibility

CPPAs offer a high degree of flexibility in contract structuring. Terms can be customised to meet the specific needs of the corporation, whether it's the length of the contract, the volume of power, or other bespoke requirements.

Energy Security

Being able to secure a long-term supply of renewable energy enhances a corporation's energy security. With the Netherlands facing substantial grid congestion issues, having a direct agreement with a renewable energy producer can offer an additional layer of security and resilience in a corporation's energy supply chain.

Green Credits

CPPAs are an effective way to procure renewable energy certificates (RECs), enabling corporations to prove the renewable origin of their electricity consumption. These RECs can be instrumental in fulfilling corporate sustainability goals and demonstrating compliance with local and international environmental standards, an area where a law firm can provide strategic guidance.

The key local advantages of a corporate PPA model would be greater price certainty and, from an ESG perspective, the ability to make green energy related claims.

Key local advantages include securing a long-term source of delivery for green electricity/energy (whether fixed price or flexible price model). Norway is one of the countries world-wide with highest percentage of clean/green energy resources. The future will show how Norway can use these natural resources to reach the goal of the Paris agreement and secure green energy for Norway and other countries it exports to (including any hybrids/interconnectors to be built in the future).

In the case of free customers, PPAs are very flexible and offer the parties the ability to negotiate the best agreement possible, as long as mandatory regulations are not breached. Prices, volume, and terms can be freely negotiated between customers and generation companies and usually reflect reasonable and fair assignment of risks and costs.

As to PPAs which supply regulated clients, the framework establishes certain strict rules that do not directly limit the contents of the PPAs but restrict the ability of certain commercial decisions. For example, the legal framework establishes the moment in which public tenders have to be carried out by distribution companies, establishes maximum prices, minimum terms, conditions and volume.

CPPAs can offer attractive pricing, in comparison to the standard market prices of electric energy. CPPAs also secure certain volume of electric energy in the long term. Furthermore, it serves the offtakers by fulfilling their ESG requirements.

Key advantages are the continuity of supply and price stability arising from long-term contracts, particularly if fixed contractual prices or hybrid remuneration structures with a strong fixed component are adopted.

The PPA model used by the government of Senegal through Senelec offers several advantages to independent producers.

To begin with, all energy produced or likely to be produced by independent producers will be purchased by Senelec, with a flexibility on the calculation of the pricing. There’s also the Exclusive Development right granted to independent producers, including the management of all activities carried out under, or related to, the PPA. On the financial side, Senelec undertakes, through the PPA, to provide guarantees to the lenders and independent producers’ lenders and also to substitute itself for the independent producer in case of default by the latter in addition to the sovereign guarantee of the state to cover Senelec’s defaults.

Finally, there is no obligation to choose the Senegalese courts to resolve disputes. Parties may refer any dispute to an international arbitration court.

1. Potential increased reliability of supply by diversifying suppliers to avoid possible supply constraints.
2. Price certainty given the uncertainty of utility price increases.
3. Reduce carbon footprint and potentially benefit from offsets or incentives in terms of the Carbon Tax Act No. 15 of 2019.
4. Support local economic development (including skills development and job creation) through a more established local renewable energy industry.

In the last year the gap between market price and generation cost in Spain has led to the signing of PPAs with an installed power of 4 GW, with deals like the photovoltaics PPAs between Audax and Cox Energy (600 MW) and WElink (708 MW). The costs of photovoltaic energy have fallen in Spain by 81% since 2010.

New regulations approved as a result of the rise in energy prices (ie Royal Decree Law 17/2021 and Royal Decree Law 6/2022) have created a reduction in the number of PPAs closed in the recent months.

The Swedish PPA market is amongst the most developed in the world. As a result offtakers and developers have been able to secure increasingly creative and ambitious offtake solutions in a Swedish market that is very familiar with PPA arrangements. Indeed, rather than the green certificate system. the advent of corporate PPAs has been the main factor in the rapid development of onshore wind power in Sweden.

For financial incentives: 

Tunisia has provided and regulated in (Decree No. 2005-2234 as amended by Decree No. 2009-362) premiums relating to actions concerned by "the regime for energy management," to encourage actions with the objectives of rational use of energy, the development of renewable energy, including:

• energy audit and prior consultation
• material and immaterial investments in the field of energy management
• solar water heating
• electricity production in the agricultural sector
• biogas production for the purpose of producing electricity

Also, companies investing in green energy can be supported by guarantee funds such as the Tunisian Guarantee Company (SOTUGAR), the Guarantee Fund SME II. These funds support companies by promoting their access to bank financing through the establishment of guarantees.

In addition, lines of credit are granted to Tunisian banks by some development institutions to finance projects involved in the energy transition. Among which we cite:

• The SUNREF line of credit granted by AFD to Tunisian banks UBCI, UIB and Amen Bank for a total amount of EUR40 million between 2017 and 2018.
• The line of credit granted by the International Finance Corporation (IFC) to Attijari Bank, for a sum of EUR40 million.
• The line of the GGF (Green for Growth Fund) to the profile of Tunisia Leasing & Factoring (TLF) – EUR10 million.

Finally, by Law No. 2005-82 as amended by Law No. 2014-54, a Fund for Energy Transition (FTI) for the financing of operations aimed at rationalizing energy consumption was created. This Energy Transition Fund is governed by the decree 2017-983.

There are also tax incentives:

• Reduction of the rate of value added tax for the import of certain components in the field of renewable energy (6% against 18% for the common law) for the year 2018.
• Reduction of customs duties on components that do not have similar locally manufactured (10%).

These rates are subject to change by the Finance Act each year.

Not applicable.

Energy security and the availability of consistent 'quality' electricity at cheap prices are key, especially so in remote areas where energy supply may be unreliable and of poor quality.

All EU Member States are obliged to have a Guarantee of Origin scheme for renewable source electricity, which has been implemented in GB as the Renewable Energy Guarantee of Origin (REGO), of which Ofgem is the system administrator.

Unlike some Member States, GB allows for the issuance of REGOs to supported generators. This has ensured a liquid REGO market in GB, and many cPPAs use REGOs/GoOs as evidence of the transfer of renewable benefit from the generator. GB is, however, reducing support offered to generators, most recently closing its Renewables Obligation scheme to new capacity on 31 March 2017.

The purchase of RECs bundled with renewable energy in whatever form allows corporate buyers to “claim” the use of renewable or green energy. Once claimed, the RECs are then considered “retired.” On-site generation can shield corporate buyers from reliability issues on the bulk system.     

As mentioned above, 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. This is advantageous in that the challenges experienced with involving the Utility can be somewhat avoided. Corporate buyers can also receive long-term certainty on the costs of such a project. 

With respect to the Physical PPA/Wheeling PPA/Sleeved PPAs (or hybrid/substructure thereof), given land acquisition related challenges, the structure does not require land at or near the customer’s site to build the project.

There’s also an option for multiple corporates to jointly development the project together, either as generators, or as buyers.