In light of rising wholesale energy market prices, the falling costs of renewable energy, and socioeconomic and sustainability considerations,1 a growing trend is emerging with the potential to breathe new life into the renewables sector: the corporate power purchase agreement (PPA).2
A corporate PPA involves businesses entering into long-term contracts with independent generators to purchase energy produced through a plant (or portfolio of plants) – and commonly for a fixed price.3 According to multinational law firm Baker McKenzie, the primary motivation behind this movement is economic, while environmental considerations also have their role to play in businesses entering the market.4
Last year, global corporations purchased 5.4 gigawatts (GW) of clean power through PPAs, surpassing the previous record set in 2015.5 Much of last year’s activity occurred in the United States, where 2.8 GW of power was signed to corporates – up 19% from the year before.6 In fact, the movement is thought to have been initiated by high energy consumers in the US – particularly those with data centres.7 Indeed, many of the early entrants to the market include some of the largest companies in the world: Facebook, Google and Amazon.8 One of the country’s most notable deals last year was Apple’s 200 MW PPA with NV Energy to purchase electricity as part of the largest agreement ever signed between a corporation and a utility in the US.9
This trend is expected to continue, with almost 90% of Baker McKenzie-surveyed corporates, utilities, investors and independent power producers in the US agreeing that more corporates could enter into PPAs in future.10
Indeed, other large multinationals have also followed suit in pursuing renewable initiatives.11 In Australia, the corporate PPA market was virtually non-existent until recently.12 However, significant power price increases over the 2016–17 period prompted a wave of interest from commercial and industrial customers – many of whom claim it would not be economical for them to operate under current prices – to procure their own electricity and seek alternatives to their existing retailer contracts.13
Over the last year, a number of parties continued the country’s foray into this space. Of them was emerging energy retailer Flow Power, which signed a first-of-its-kind PPA with the Ararat wind farm in Victoria.14 Interestingly, its founder Matthew van der Linden said the company’s customers were not seeing corporate social responsibility or sustainability as the main driver for this offer, but rather the pain of soaring power bills.15 Meanwhile, the Sunshine Coast Council opened its own solar farm in an effort to curb rising energy prices and fully offset its power needs,16 while Telstra, Coca-Cola Amatil, ANZ and the University of Melbourne joined forces to pre-purchase energy from what will be the largest wind farm in the southern hemisphere.17 During the year, Telstra – which accounts for 1% of Australia’s power demand – also struck a deal with renewable energy producer RES Group as part of its new energy strategy,18 while the University of New South Wales entered into an arrangement with Maoneng Australia and Origin to purchase solar-powered energy for 15 years.19 In the meantime, other organisations have announced their active exploration of corporate PPAs as a risk management strategy, including Coles, Monash University and the Southern Shire Regional Organisation of Councils.20
Given the number of businesses who have signed PPAs over the last year, the corporate PPA movement appears to be gaining traction, presenting opportunities to not only curb high electricity costs, but to also contribute to the expansion of renewables on the grid.
John joined New Energy Solar as Managing Director and CEO in May 2017. He brings a wealth of experience and capability to the role after more than two decades of experience in corporate advisory and investment banking with a focus on the infrastructure, energy and utility sectors.