24 April, 2018
In 2015 Baker McKenzie released one of the first thought leadership reports about corporate PPAs: The rise of corporate PPAs, a new driver for renewables. Since the issuance of that report there has been an almost 20% increase in the number of gigawatts of clean energy provided via corporate PPAs, with 5.4 GW of clean energy purchased by corporations in 2017 compared to the previous record of 4.4 GW in 2015, according to Bloomberg New Energy Finance's ("BNEF") Corporate Energy Market Outlook. Baker McKenzie has advised on many corporate PPAs throughout the world, some of which are highlighted in the following map.
According to the Climate Group's RE100 Progress and Insights Report released in January 2018, direct procurement from offsite grid-connected generators has grown fourfold from 3% to 13% of RE100 members' (corporations pledging to source 100% of their electricity from renewables at some date in the future) total renewable power consumption between 2015 and 2016. Most of the corporate PPAs in 2017 were for wind power.
The majority of renewable corporate PPAs are occurring in the US, which had 2.8 GW in corporate PPA volumes in 2017, which exceeded the 2016 rate by 19% according to BNEF's Corporate Energy Market Outlook. Europe, the Middle East and Africa was the second-largest market for renewable corporate PPAs in 2017, with corporates there buying 1.1 GW of clean power per BNEF. Corporate PPA volumes are increasing in Latin America and Asia Pacific due in part to increasing corporate demand for sustainable and economical energy solutions and because of regulatory changes.
Trending
Economic, green and reliability advantages sought, and by more entities
Corporates continue to look to corporate PPAs for economic advantages such as long-term price predictability and the ability to hedge against future price increases from the grid, as well as for green and sustainable reasons. Corporate PPAs are increasingly being used in emerging markets to provide reliability and resilience by counteracting grid outages.
Large multinationals are beginning to apply their sustainability pledges to their global supply chains and data centers, leading to an uptick in Asian and European corporate PPAs. Universities are becoming particularly active in this space due to their large energy consumption and socially conscious procurement teams. For example, in Australia, Monash University, the University of Sydney and the University of Technology in Sydney have each run corporate PPA tenders; in the US, Georgetown University entered into a power purchase agreement to develop a 32.5 MW offsite solar power system to provide almost half of the campus' electricity. More industrials are entering the space; for example, some mining companies in Africa and Latin America now use corporate PPAs to source clean energy and reduce costs.
Terms shortening and lender confidence growing
In terms of market dynamics, developers prefer to sign 20 to 25 year PPAs on fixed tariffs but in the right markets will consider shortening the term to 10 years and floating tariffs. For example, in the Netherlands, it is increasingly accepted by financiers that the term of corporate PPAs has become shorter than the lifetime of the project loan (but this may gradually disappear if merchant risk increases due to decreasing subsidies). Numerous corporate PPAs have involved projects which were project financed, giving developers confidence that a corporate PPA is bankable.
For the full report, please click here.
For further information, please contact:
Paul Curnow, Partner, Baker & McKenzie
paul.curnow@bakermckenzie.com
