Clean energy plays an increasing role in the modern corporate sustainability strategy, and PPAs are an effective, long-term business opportunity for corporates.
PPAs are perceived as expensive, risky or complex. Often, businesses do not have in-house expertise, time and resource to explore the opportunities and understand the value PPAs bring to the energy supply mix. Corporates now have more options than ever before.
The Virtual PPA is a purely financial contract offering a simpler alternative to ‘physical’ PPAs. Increasingly bespoke solutions are being designed around financing and contract terms that mitigates previously unacceptable risks. Additionally, with reductions in the cost of clean energy technologies, PPAs are becoming an attractive option for corporates keen to put in place competitive price hedges whilst strengthening credentials and meeting carbon goals.
What does the future hold?
Long-Term Electricity Prices
- A long-term electricity price hedge through a PPA offers strong budget certainty and risk mitigation.
- A view on long-term electricity prices capturing a wide range of traditional and non-traditional drivers is key to the PPA business case.
Emerging Disruptive Technology
- Uncertainty regarding market penetration of new technology (IOI, Battery Storage & Electric Vehicles) requires further data to predict impact on demand.
- Major offshore wind projects scheduled to come online in the short to medium term are expected to influence supply.
- The potential for new levels of supply and demand to materially affect electricity prices is still unknown.
In short, it’s a buyer’s market
Incentive and subsidy removal for clean energy projects means developers are seeking corporate off-takers for project financing. The market needs contractual innovation, mainly on term-flexibility, as the number of off-takers able to mobilize and commit to large scale projects is finite. Suppliers recognize demand for shorter term contracts, but struggle due to long-term commitment to raise the required capital investment.
The combination of legacy generation and new build projects on the market make it an ideal time for corporates to evaluate unique opportunities that fits company strategy and demand. Furthermore, declining technology costs have improved returns. For corporations looking to accelerate the adoption of clean energy, it’s a key moment.
Businesses contract for shorter terms via ‘third-party sleeving’ of energy volumes from clean generation projects into existing agreements.
> Typically contracted with larger utilities, this method provides a great alternative to long-term PPAs.
- ‘Sleeving’ also provides a route to exit from a strike price should markets fall.
The future value of clean energy appears bright:
- Governmental policies like a carbon tax will favour fossil-free assets and technology.
- Intermittency set to become less of an issue; disruptive technology like battery storage, EVs, and smart grids will boost the long-term value of projects.
- Expected rises in electricity prices will increase asset value and the value of your energy price hedge in the long run.
- The value of additionality (often overlooked as complicated to quantify), sets to rise as a more environmentally-conscious demographic enter the workforce.
What’s available for my business?
With government subsidy removals, developers are increasingly dependent on corporate off-takers. The scope for negotiations in the off-takers favour has dramatically increased. It’s also accelerated levels of innovation and flexibility in financing structures and contract simplification. With a successful go-to-market strategy that defines business objectives and requirements, corporates can secure the most cost-competitive and low-risk opportunities.
Paul Hill, Operations Director
Almach – Clean Energy Innovation
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