Even under less-than-optimal conditions, corporate power purchase agreements (PPAs) are rising in popularity as way to procure clean energy – but not for the reasons most expect.
Unpacking the Business Renewables Centre Australia’s (BRC-A) corporate PPA State of the Market report for 2021, BRC-A technical director Chris Briggs says around two-thirds of buyers nominated non-price factors as the reason that they were doing a PPA.
“There seems to be a bit of a surge of organisations signing net zero commitments, which for most organisations means they have to get an offsite renewables option because you can’t do everything onsite.”
Briggs says this is quite a departure from the early PPA market that responded to high energy prices caused by the Hazelwood coal station closure, prompting many energy customers to investigate PPAs to avoid price shock.
However, price remains an important driver. “But I guess in the balance, net zero targets and sustainability commitments are arguably the primary driver now.”
Briggs was also surprised to report one of the “best years we’ve ever had for PPAs” despite the ongoing disruptions from Covid and low wholesale electricity prices, which means less price motivation to try and negotiate an alternative deal through a PPA. He also says the regulatory environment and transmission problems have also stymied the number of new projects getting up.
Around 770 MW have been signed this year so far (but a few additional projects could push it closer to the 1 GW mark), making it the third best year for PPAs to date.
Another emerging development is the shift towards retail PPAs. In the past, Briggs says PPAs were characterised by a two-lane market where big buyers did wholesale PPAs directly with renewables projects and mid-scale buyers did deals via a retailer.
“And the big ones were doing that primarily because they had the expertise and they could get a better price without a retailer being between them and the project, as the retailer takes a margin.”
He’s since observed larger companies drifting towards retail PPAs, which he chalks up to retailer offerings “getting a bit sharper” in terms of their pricing and attractiveness. It also helps avoid some of the accounting and complexity that comes with having a separate derivative on the retail bill.
Looking forward, Briggs forecast another healthy year for corporate PPAs. Promising signs include state government issued renewable energy zones which are intended to address some of the transmission issues stopping new renewables projects.
Corporate PPAs continue to attract an array of customers from different sectors, including local governments, tech companies, property developers and retail outfits. One sector that has seen a spike in PPAs of a noteworthy size is the mining sector, with buyers such as the BHP Olympic Dam polymetallic mine project in South Australia securing large contracts.
A priority raised by respondents to the annual survey was the need to protect against reputational risk when signing a PPA. “[A utility scale renewables project] is a big piece of infrastructure which can have positive social impacts or negative social impacts, depending on how it is run. And that can reflect on the buyer and the company.”
Something that’s becoming more popular is backing projects that deliver additional social benefits, such as a site on industrial land rather than agricultural land, or projects that employ people from the local Indigenous community.
Briggs says layering these social benefits critically helps achieve internal buy-in. “It makes it a bit more real for people inside the organisation when you start explaining the job opportunities and the social dimensions.”
According to the report, as of the end of October 2021, there have been 110 publicly confirmed renewable energy PPAs that have contracted more than 4 GW of renewable electricity and enabled or supported over 10.5 GW of project capacity. The total value of large-scale renewable capacity bought through PPAs is $4.4 billion.
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