What is a corporate renewable
Power Purchase Agreement?

Renewable Power Purchase Agreements (PPAs) are contracts to enable companies to source renewable electricity and achieve operational cost savings without making upfront investments.

A PPA is a contract between the corporate buyer (off-taker) and the power producer (developer, independent power producer, investor) to purchase electricity at pre-agreed prices for pre-agreed periods. The contract contains the commercial terms of the electricity sale: length, delivery point/date, volume and price. The electricity can be supplied by existing renewable energy assets or new build projects. 

 

PPAs for newly built projects often have more stringent terms – for example, a duration that covers at least the debt term of the project finance. New project deals are typically long-term (10+ years) PPAs, but short-term PPAs or PPAs for existing assets can have a tenor of less than a year. There is a wide variety of pricing structures, including fixed prices and discounts pegged to wholesale prices. 

What are the benefits?

Corporate buyers use renewable PPAs as a means to increase cost visibility, reduce electricity costs and meet sustainability goals. Developers aim for risk mitigation, enhanced bankability and increasing the pool of potential customers. PPAs have many benefits above and beyond CO2 emission reductions, and the likely operational cost savings that can be achieved. Some of these benefits are mentioned below. 

For corporate buyers:

 Economics

  • Fixed electricity price or fixed price cap, without upfront capital
  • Visibility and certainty of future electricity costs
  • Hedge against energy price volatility
  • Risk mitigation against cost of carbon
  • No operation & maintenance (O&M) costs; operational risk sits with developer

Sustainability

  • Contributes to Sustainable Development Goal 12 – Ensuring sustainable consumption and production patterns
  • Progress towards renewable energy and carbon reduction targets
  • Regional development bank support in countries that encourage companies to reduce their carbon footprint

Brand and leadership

  • Recognition for renewable electricity achievements

Leverage

  • Partnerships with a small number of reliable, experienced power producers
  • Focus maintained on core business areas (versus owning and operating power generation assets)

For developers:

Risk mitigation

  • Lower capital cost through guaranteed purchase by corporate buyer
  • Revenue diversification
  • Stronger investment pipeline through corporate buyer relationships
  • Diversification of payment default risk (in multiple-buyer PPAs)

Bankability

  • Stable, long-term income that eases bankability with financial institutions
  • Contracting with creditworthy corporate buyers

Brand

  • Transactions with like-minded companies – effect on stocks
  • Active involvement in the development of a sustainable energy system

Business development

  • Pool of off-takers that creates additional demand
  • Geographical expansion through trusted partnerships with corporate buyers
  • Reduced cost through development of standard terms and conditions

Signing PPAs equally comes with risks for corporate buyers and developers that need to be efficiently allocated to the party most suitable to manage them. These include, for example, basis risk, profile and volume risk, currency risk, or change of law risks. WBCSD’s guides explain what these are and how companies can manage them. 

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