4 questions to consider before you choose a PPA
It’s important to carefully consider whether a PPA is right for your organisation before entering into an agreement.
As power prices continue to rise, and businesses face increasing pressure to improve their sustainability, more organisations are choosing to make Corporate Power Purchase Agreements (CPPAs). With average contracts lasting 10-15 years, however, it’s important to carefully consider whether a PPA is right for your organisation before entering into an agreement.
What is a corporate PPA?
A CPPA is a long-term energy contract between a business energy user and a generator of renewable power. The business will agree to buy a fixed volume of power from the generator over the long-term – agreements usually last around 10-15 years.
What should businesses consider when choosing a PPA?
A PPA is a long-term, legally binding agreement, so if you’re thinking about switching to a PPA there are some key questions you need to consider within your organisation first. They are as follows…
- How much volume are you looking to purchase?
It’s important to consider how much volume you want to take from a CPPA, as this will help you to determine which project is right for you. If your business uses a lot of power and you’re looking to source a significant volume from a CPPA, then you need to find projects that are large enough to support your power requirements. Due to the lack of subsidies now available to new generation projects, new generation sites are typically larger in order to achieve greater cost efficiencies, so you should be able to find a project that can meet your needs.
However, your business doesn’t have to be a heavy power user to be able to enter into a corporate PPA. In recent years, we’ve seen more CPPAs made up of multiple offtakers – one or two larger offtakers may take around 70% of the supply, for example, while a number of smaller offtakers take the remaining 30%. So it’s worth exploring CPPAs even if your business isn’t looking to purchase a substantial volume of power – we are currently helping businesses to source CPPAs in which they offtake as little as 6GWh.
- How long do you want to enter into a contract for?
Many businesses choose to enter into a PPA because it gives them long-term price certainty, as most PPAs last around 10-15 years. So if your business is looking for price certainty, then a long-term PPA could be the best option for your business – contracts can last up to around 20 years. However, if you’re not keen on locking your business into such a lengthy agreement, you don’t need to dismiss PPAs. Shorter contracts are available, with many businesses now opting for PPAs that last just five years – this is usually with existing assets via a supplier, rather than with an independent generator.
When you’re considering a PPA, you should also think about whether you need a PPA with portability. Portable PPAs enable you to change your energy supplier when your supply contract ends and take your PPA with you, so that your agreement with the generator remains intact.
- Does a PPA suit your appetite for risk?
Any energy contract comes with an element of risk, and CPPAs are no exception. There are two key areas of risk when it comes to CPPAs – price risk and volume risk. As you agree to a fixed price for the energy you take from the generator when you sign the contract, there’s a risk that your business could be left paying a higher price if market prices fall in the future. In terms of volume, as renewables can be intermittent there is a risk that the generator might not generate enough power to meet your requirements, or it may generate too much power which will result in a surplus to trade.
Depending on your organisation’s risk strategy, you may be happy to take some of these risks – if you’re more concerned about budget certainty than the risk of grid prices falling, for example, a PPA might meet your needs. There are also plenty of ways to mitigate volume and price risks, such as only sourcing part of your volume from a CPPA. It’s important that your key stakeholders are aware of these risks from the outset, however, and that you put any mitigation measures in place before you make an agreement.
- Could you benefit from expert support?
There’s no ‘one size fits all’ structure when it comes to CPPAs, which means that you can negotiate with suppliers to create a CPPA that meets all of your organisation’s needs. However, these contract negotiations can be complex, and you need to be really clear on what your organisation is looking to get out of a PPA.
While the questions above are a good place to start, we’d always recommend seeking expert support in securing a PPA, as this will ensure that you find the best contract for your organisation. With our Fully Managed Corporate PPA service, we’ll match your volume requirements with renewable project developments and our experts will facilitate contract negotiations – so you don’t have to. To find out more, visit our CPPA hub.