Posted on: 14/05/2020
As calls for government to use the renewables industry to help kickstart the economy continue to grow Account Manager, Owen Moulton looks at the role Corporate PPAs can play in helping businesses achieve decarbonisation goals and provide additionality.
As the UK adapts to what has been termed ‘the new normal’, various commentators within industry have called on the government to use the renewables industry as a tool to help kickstart the economy. Weight was added to these claims this week after Chief Executives from more than 40 international organisations called for any recovery packages to be linked to net-zero carbon targets.
Whilst the UK is looking to reach net-zero by 2050 and play its part in limiting the rise of global temperatures to less than 1.5 degrees Celsius, this looks difficult to achieve against the backdrop of reduced subsidy support since the closure of both the Renewables Obligation and Feed-in Tariff schemes to new generation projects. Particularly when you consider the Committee on Climate Change’s recommendation that the level of renewable generation in the UK needs to quadruple in order to hit this goal.
As a result, new methods are needed to help enable the deployment of renewable power projects. One way of providing this additionality is through a Corporate Power Purchase Agreement (CPPA). Put simply, a CPPA is an agreement between a business and a generator for the direct purchase of power from that project. Of course, this does not mean that the physical power generated can be transported to a consumer’s location, but rather this is a contractual arrangement to enable the end consumer to prove they are buying their power from a specific source. Where a consumer chooses a renewable technology, this also enables them to report zero scope 2 Greenhouse Gas Emissions.
Whilst sustainability ambitions are a key driver (many global corporates have already made commitments to being net-zero or even net-positive by 2030) other factors are now also bringing CPPAs into play. For example, supply chain considerations are now becoming more prevalent, with some large businesses requiring their supply chains to source a proportion of their power via PPAs. For other businesses, as well as the benefits brought about by decarbonisation and enabling additionality, a CPPA can simply be a form of hedging, locking in a fixed price over an agreed timeframe, typically longer than the liquid market.
It’s worth noting that time concerns have previously been a significant hurdle for CPPAs. Even the most keen businesses may not have previously been able to commit to a 10 - 15 year agreement due to operational considerations, but the recent emergence of 5 + 5 deals which enable either party to make a decision after the initial 5-year period are making these kinds of deals more viable. Similarly, the ability to off-take a percentage of the output from a renewable project, or the ability of end consumers to team up with other businesses and off-take varying volumes are helping to make CPPAs a reality now.