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Barriers brake power of big business to drive renewables

The advantages for big companies of buying their electricity directly from wind and solar generators at a fixed long-term price is bringing what could become a major new flow of capital into the renewable energy market, but outdated legislation remains a barrier

Corporate power purchase agreements for renewables have soared globally, from an average of 500 megawatt a year around the turn of the decade, almost all in the US, to a record peak of 5.4 gigawatt worldwide in 2017, despite restrictive legislation

Power purchase agreements (PPAs) signed directly between customers and energy generators are increasingly becoming a feature of the renewable energy market, with large corporations buying their electricity from independent generators as well as investing in solar and wind capacity. The trend has accelerated in the wake of high-profile companies, including big tech firms such as Google, Apple and Facebook, pledging to power one hundred per cent of their operations with renewable energy in the coming years. The US has historically led the way for corporate PPAs for renewables, but the movement soared globally in 2017, from an average of 500 megawatts (MW) a year around the turn of the decade to a record peak of 5.4 gigawatts (GW) last year with contracts signed by 43 corporations in ten different countries, according to Bloomberg New Energy Finance (BNEF). This was up from 4.3 GW in 2016 and a previous record of 4.4 GW in 2015. The advantage of a PPA is that it fixes the price for electricity over a particular time period, which could be as short as one or two years or as long as 15 to 25 years. With no fuel costs to take into consideration, renewable energy’s cost of generation is a known quantity and the sales price can be fixed with confidence for years ahead. Renewable energy power plant developers will aim for a long-term PPA to give confidence to equity investors and banks that their projects will earn sufficient cash-flows for a financing package to be put together, state BNEF and UN Environment in a recent report.

Policy questions

Corporate renewables PPA activity continued to occur in the US in 2017, where 2.8 GW of PPAs were signed by corporations, up 19% from 2016. BNEF cites Apple’s 200 MW PPA with NV Energy to buy electricity from the Techren Solar project in Boulder City, Nevada as the most notable of these deals. Indicating the growth of corporate PPAs beyond the US, the largest deal anywhere in 2017 was in Europe where aluminium producer Norsk Hydro committed to buy most of the electricity from the 650 MW Markbygden Ett wind farm in Sweden from 2021 to 2039. The growth in PPAs came despite question marks about how evolving policy could affect corporate procurement of electricity. In the EU, renewable energy producers are lobbying hard, during the final negotiations of the Clean Energy for all Europeans legislative package, for a framework that will support organisations investing in renewable energy production. The package as a whole will set the rules of the game for renewable energy investment to 2030. Market structures and the regulatory and support regimes for PPAs are currently different across the EU, as are interpretations of the guarantees of origin (GOs) that certify the source of the purchased electricity. GOs are electronic tracking certificates proving that a given quantity of electricity was produced from a specific source. In some countries GOs are issued for all renewable energy production, in others, such as Germany, issuing GOs for renewable energy already supported by subsidies is prohibited. The system is not perfect, there is progress that needs to be made,” said Vanessa Miler-Fels, renewable energy strategist at Microsoft during a recent conference in Brussels. But she also underlined the necessity of their existence. Without GOs, we lose credibility.” Other challenges for the PPA market in Europe include an unwillingness on the part of overly cautious grid operators, already under fire for not optimising cross-border trade in Europe’s internal electricity market, to make the necessary investments to accommodate more renewables trading, says Jochen Hauff from BayWa.r.e renewable energy. Governments, on the advice of the grid operators, are afraid that the grid will collapse. Corporates and other self-consumers of renewables are adding to the system, not creating a problem for it, but the grid operators want to manage the grid according to their own schedule and investment framework.”

Large and small

Elizabeth Reid, partner at law firm Bird & Bird, believes that key to growing the market is offering attractive packages” for companies of all sizes, with the possibility of larger companies acting as major partners in PPA deals that also include smaller companies. Phil Dominy from Ernest & Young, one of more than 120 influential businesses that has committed through the global RE100 initiative to use 100% renewable electricity, agrees. Aggregation could help and in the RE100 group we’re talking about the concept of corporate clubbing [group purchasing] in order to scale up.” In an attempt to influence the EU energy package, RE100, together with SolarPower Europe, WindEurope, the World Business Council on Sustainable Development and the Carbon Disclosure Project, have published a joint set of recommendations to tackle these issues and unlock the potential of corporate sourcing in Europe.” These include calling for: a basic regulatory framework across the EU; adequate market design and further market integration; better traceability of renewable electricity through GOs; and for contracts to be made more flexible” and less complicated to enable small and medium sized enterprises to implement corporate renewable PPAs. Getting legislation right is important. The RE100 initiative, in a report published in January 2018, found that within its members, the proportion of procurement from offsite grid-connected generators via PPAs increased more than fourfold from 2016 to 2017, from 3% to 13%. The greatest increase in PPAs was in the regions where legislative frameworks are the most favourable,” notably, in the US, Mexico, the UK, Ireland and the Netherlands. Despite this growth, it is still early days for corporate PPAs, which only supply 0.5% of the electricity consumption of the global corporate sector, but its potential for reducing emissions is significant. We’re not going to get to 80% to 90% renewables penetration without enabling corporates and others to buy in,” says Hauff.

TEXT: Clare Taylor and Philippa Nuttall Jones

T
his article is part of the Nordic Clean Energy Series
, published by FORESIGHT Climate & Energy to support Nordic Clean Energy Week. A week where energy leaders from around the globe gather in Copenhagen and Malmö to discuss the policies, business and technological solutions and challenges involved in tackling climate change.

Learn more about the week - Nordic Clean Energy Week

Take a look at FORESIGHTs Nordic Clean Energy Special Edition
published in May 2018.