A perfect storm for corporate buyers seeking PPAs is building in the lead up to 2030 - don't get caught!

 

In this blog we highlight the risks of Australia’s energy transition and its “messy middle” and why corporates looking to secure a PPA for 2030 and beyond should consider engaging the market now.

Does your business' PPA expire between now and 2030? Do you have a 2030 renewable energy target? - In a recent webinar run by the Business Renewables Centre Australia, “Take control: Renewable energy contracting strategies to manage uncertainty to 2030 and beyond” SmartestEnergy’s Dan Smith who, together with his team, work with corporates across the National Electricity Market (NEM) to design risk-managed renewable electricity supply contracts, shared his insights on successful strategies amid market uncertainty. 

Trouble on the horizon

We are in a challenging and unchartered phase of Australia’s energy transition. While there has been an extensive build out of generation capacity, we are lagging against targets. Wind and solar projects have been delayed as has the construction of enabling transmission. To shift the supply and demand imbalance we are waiting for flexible assets like batteries to come online. In the meantime, grid instability deepens as Australia’s existing and aging coal fired power fleet are pushed beyond their asset operating life.

As a result, high and volatile prices are expected to persist until the new flexible asset class blends into the generation mix. We also see the problem of financial markets which are not adapting quick enough to provide suitable liquid hedging instruments to help mitigate these different types of energy market risks.

There are considerable supply-side issues. But where the trouble is brewing is with the expected surge in demand for new PPAs. Across the market many contracts are set to conclude in 2030 in line with the end of the Renewable Energy Target (RET) Scheme.

What we could see is a rush on the 2028-2030 window to secure new agreements.

The challenge is compounded by the expected entry of large, power-hungry data centres also seeking new supply agreements and which typically have global targets of 100% renewable energy.  

Our message to buyers? - Don't wait.

Don’t risk entering a market that can only offer suboptimal outcomes. If you act early, you can secure the PPA that is right for your business’ size, risk tolerance and operational capabilities. Engage the market early. Start building relationships with developers with good quality projects that suit your demand, and/or retailers that aren’t just your incumbent.

Large energy users which are particularly exposed to that cost risk should also consider how they can build diversity across their energy portfolio in terms of the structure of contracts or hedges, technology type (wind, solar or BESS), tenor (duration to support flexibility) and location, in the same way you would manage risk across an investment portfolio.

View the webinar in full on YouTube.

You can also read more about our support and guidance for large energy using corporates and developers in our article, “Developers and large energy users engaged directly in the market: what can you do to mitigate the risks of the energy transition’s “messy middle”?”  

Disclaimer: The information enclosed is general information only; it cannot be relied upon as legal or financial advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person or entity.