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Corporate power nguồn Purchase Agreements (PPAs): What are they?


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Share this12 November 2019By:

A Corporate power Purchase Agreement (PPA) is a long-term contract under which a business agrees khổng lồ purchaseelectricity directly from an energy generator. This differs from the traditional approach of simply buying electricity from licensed electricity suppliers, often known as utility PPAs.

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Such structured agreements provide financial certainty for the utility companies và the developers, which removes a significant roadblock khổng lồ financing & building new renewable facilities; PPAs are therefore helping lớn deliver more renewable energy on the grid.

In a world where many countries have reduced or withdrawn subsidies for renewable energy, a Corporate PPA with a financially strong counterparty is an essential component for achieving a "bankable" project.

Power Purchase Agreement structures

There are three typical contract structures for the corporate PPA: Physical PPAs, Synthetic PPAs & Private Wire PPAs.

Physical PPA

Pursuant to lớn a physical PPA, the corporate off-taker will enter into a long term PPA (commonly with a term in excess of 10 lớn 15 years) with a renewable energy generator khổng lồ take some or all of the energy generated by its plant (or portfolio of plants) with a defined amount of power nguồn sold at a fixed price per MWh.

The PPA will contain provisions for the sale & purchase of electricity and the allocation of any applicable renewable energybenefits (such as green certificates), và all of the provisions governing that sale & purchase. The delivery of renewable energy is notional in most cases.

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In certain jurisdictions, including the UK, these provisions will also include obligations lớn provide or procure certain metering & regulatory activities that can only be undertaken by licensed electricity suppliers. As such, in these countries, the corporate off-taker will need lớn enter into a back-to-back agreement with a licensed supplier under which the licensed supplier commits to undertake these obligations.

In parallel khổng lồ this arrangement, in many jurisdictions, the corporate off-taker will have an electricity supply agreement with that licensed supplier under which electricity may be supplied to meet the corporate off-taker"s energy demands from time lớn time. The terms of supply under this supply agreement will take into trương mục the electricity purchased under the PPA & passed through lớn the licensed supplier under the licensed supplier agreement. This ensures that the corporate has the benefit of the fixed pricing for renewable energy under the PPA but the reliability of a supply agreement with a licensed electricity supplier to meet its day-to-day energy demands.

Synthetic PPA

In a synthetic PPA structure no nguồn is physically traded. Instead, the agreement functions with a derivative contract structure where the offtaker và generator agree a defined "strike price" for nguồn generated by a renewable energy facility. Each buổi tiệc ngọt will then enter into separate agreements with their electricity supplier / utility lớn sell/acquire (as applicable) electricity at the spot price. The agreement then works as a financial hedge: if the spot price in a settlement period exceeds the PPA defined strike price, the generator pays the excess amount to lớn the offtaker for power generated in that period; if the market price for power is less than the strike price in a settlement period, the offtaker shall pay the shortfall amount to the generator for nguồn generated in that period.

Private Wire PPA

Private Wire PPAs are concerned with the sale of electricity from a generator lớn an offtaker. However, unlike the Physical PPA, power nguồn will normally be sold directly from the generator"s facility lớn the offtaker, rather than being notionally passed through a national power grid. The generating facility will be located at, or close to, the offtaker"s assets và will usually only supply power to the offtaker. Private Wire PPAs may often be utilized in conditions where the offtaker wishes to lớn secure its own source of nguồn (for example for use in a factory, or in an off-grid location), or in countries where the grid system is not reliable.

Global Relevance of PPAs

Whilst now well established in US, UK and Scandinavian markets, developers và offtakers are constantly looking khổng lồ new jurisdictions to utilize PPAs - in recent weeks và months we been involved in new discussions on PPAs in Spain, Portugal, Romania và Japan, lớn name only a few. The increasing frequency with which large, well-known corporates have entered into PPAs và invested in generation assets of their own, stems from both the economic và environmental benefits they provide.

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Although the original instigators of the Corporate PPAs were the high energy using data centres, the desire to lớn enter into PPAs has not been limited to lớn particular types of companies or geographical areas. Large banks, oil majors, retailers, restaurant chains và IT và telco companies have all widely published details of their PPAs — all sorts of companies are concerned about their carbon footprints.

At DLA Piper we have first-hand experience of the win-win scenario these PPAs offer, having advised lenders, developers & offtakers on their PPAs — from generators and their funders khổng lồ the corporate end users và their licensed electricity suppliers - we have acted on many of the largest European corporate power nguồn purchase agreements in the recent years.