Corporate PPAs on the rise, as business develops appetite for renewables

Australia’s poor record on commercial renewable energy power purchase agreements could be about to change, as part of a broader market trend being forecast by Baker & McKenzie.

In a report released on Tuesday, Baker & McKenzie said the practice of purchasing renewable electricity under long-term PPAs was on the rise in the global corporate community, as businesses of all sizes recognised their economic and sustainability benefits.

The report, based on a survey of more than 100 senior executives, indicates a growing number of businesses are now signing long-term renewable PPAs that see them buy renewable electricity directly from independent generators, as well as investing in generation assets instead of buying power direct from utilities.

As the report notes, the corporate renewable PPA market has been led by the US – you can see this in the chart below – most notably by internet and computing giants including Google, Apple and Facebook.

Beginning January 2016, the report says, Apple will fully power its Singapore operations with solar energy via a long-term contract with Sunseap Group, signed in November 2015.

In early 2015, General Motors signed a 104MW PPA with Enel Green Power for a wind farm in Mexico that will supply all of the electricity required by GM’s Toluca factory.

Google, meanwhile, committed in 2014 to buy all of the power produced at a 62MW wind farm being built by Eneco in the Netherlands, in a 10-year deal. The electricity will power Google’s new Netherlands data centre that will come online in 2016.

In Australia, however, PPAs have been slow to take off, thanks in no small part to the political uncertainty that has dogged the local renewables market during Tony Abbott’s two years as Prime Minister.

As we wrote here just over a month ago, “utilities are talking about signing some power purchase agreements, but only for a relatively short period, around three to five years. That is not enough for the bankers to get over the line, there is still too much uncertainty for 25-30 year assets.”

This phenomenon – not unique to Australia – is referred to in the report.

“Utilities in some major renewable energy markets such as the US are not offering PPA prices that create adequate returns for investors,” it says.

Corporate offtakers, however, can be prepared to offer higher prices, which sometimes makes a project financeable.

One of Australia’s earliest examples of such a PPA was between NSW winemaker Tyrrell’s and Sunlease, a Solgen Group solar leasing company, mid-way through this year.

The 20-year deal saw Sunlease install a 350kW system at the Hunter Valley winery for no up-front cost. As Tyrrell’s CEO Bruce Tyrrell said at the time: “I can… look forward to paying a fixed amount per kWh for the winery’s energy consumption for the next 20 years. In my view, this is a stable opportunity for the business.”

But according to the Baker & McKenzie report, this is a view being taken by more and more businesses – big and small – even in Australia.

Almost 90 per cent of surveyed corporates, utilities, IPPs and investors said they believed more businesses would enter into PPAs in the next 18 months than in the past 18 months.

According to Baker & McKenzie partner, Paul Curnow, this is “good news” for the Australian market going forward, after a prolonged period of uncertainty.

“Unlocking the corporate appetite for renewable energy through corporate PPAs opens up some new market opportunities for Australia,” Curnow said in a statement.

“It provides new customers for renewable energy projects and enables corporate customers to directly access renewable energy sources of their choice that to date they’ve only been able to access through GreenPower.”

Curnow added that corporate PPAs provide contractual price certainty for projects, enabling financing and ultimately implementation. They provide corporate customers with the benefit of reduced and relatively certain electricity prices and a boost to their green and sustainability profiles.

“The traditional market uncertainties as to how aspects of these projects should be structured including accessing and transporting electricity to customers are issues that are now being addressed by key stakeholders including regulators.

“Addressing these factors will continue to help unlock Australia’s renewable energy project pipeline, which includes 1000s of megawatts of new wind and solar projects across the country.” Mr Curnow said.

“Corporate PPAs are a great boon to the industry because utilities were becoming very cautious about entering into long term PPAs at prices that developers hoped to obtain due to low natural gas prices,” said Clyde “Skip” Rankin III, another partner at Baker & McKenzie.

“We recently worked on a deal where the corporate offtaker was prepared to pay a little bit more per MWh than a utility would be able to, and this difference allowed the developer to sign a 15-year contract,” Rankin said.

“There are few utilities that will contract for what a corporate is willing to pay today. You’re probably talking at least
a dollar or two below. That’s real money to the developer and yet not such a major risk to the corporate.”

You can download the Baker & McKenzie report, “The rise of corporate PPAs – A new driver for renewables,” here.