How Can Innovative PPAs Help Businesses Go 100% Green?

As Europe’s climate ambitions grow, businesses are becoming increasingly more active in the energy transition. The combination of falling renewable power costs and growing corporate appetite for renewable energy has spurred the growth of corporate power purchase agreements (CPPAs), which tapers the need for direct government support. 

Europe’s growing CPPA market is mainly driven by longer-term power purchase commitments from large energy consumers in the IT sector (e.g., Google, Facebook) and heavy industries (e.g., Norsk Hydro, Alcoa). To maintain the rapid pace of growth, renewable developers will have to constantly innovate and adapt their offerings to keep costs down, expand the pool of offtakers, and satisfy changing customer needs.     

Guidehouse expects Europe’s CPPA landscape to experience three major trends. 

1. Maximizing Renewable Consumption with Load-Following CPPAs

To meet increasingly ambitious renewable power procurement targets, corporate buyers will look for CPPA solutions that maximize their share of renewable consumption. Pooling different renewable intermittent technologies under one CPPA can lead to a more demand-fitted generation profile and mitigate some of the inherent risks related to imbalance costs and volume variation. 

Load-following CPPAs can cover 100% of electricity needs with renewable power if they are complemented with dispatchable technologies (storage, biomass/biogas, and hydro) when the sun or wind are not enough to meet demand. Multi-technology solutions will become increasingly attractive as renewable portfolios are expanded and technology costs decline.

Load-Following PPA: Dispatchable Power Complements Variable Renewables
while Excess Generation Is Exported

(Source: Guidehouse)

2. Finding the Best Value with Cross-Border CPPAs

To minimize energy costs, renewable power buyers will shop for the best deals, not only in their domestic markets but across Europe’s lower cost geographies. This will result in increased uptake of cross-border CPPAs, which enable corporate buyers to procure power from a renewable plant in a low cost country and use the physical electricity in another. Early examples are evident in integrated markets—like the CPPA signed by Facebook with the Bjerkreim wind cluster in Norway to power its data centers in Denmark and Sweden.

However, limited cross-border interconnection makes long-term purchase commitments risky and most offtakers are left with the option of purchasing guarantees of origin in one country to offset electricity consumption in other markets. Therefore, the growth of cross-border CPPAs in Europe will depend on the successful and continued integration of its power markets. Increased interconnection capacity, more long-term visibility over interconnector availability, and the integration of intra-day markets will facilitate the development of cross-border CPPAs in the future. 

3. Scaling Renewable Procurement: From Aggregation to Commoditization

Signing an individual CPPA can be difficult for businesses that do not have the scale to absorb the output of utility-size renewable plants. However, aggregating multiple offtakers can help them overcome that challenge, and can reduce transaction costs and spread risks. Aggregation platforms can act as a marketplace for all sizes of renewable power buyers and sellers and can simplify the associated sales process. 

As the CPPA market matures, the need for further scale and liquidity may drive the commoditization of renewable power—a shift from signing bilateral contracts on CPPA platforms to more granular trading of electricity blocks or required shapes based on standardized contracts. As opposed to conventional power exchanges, electricity will be traced back directly to its renewable source and CPPAs will continue to facilitate the addition of new renewable capacity (the additionality concept). 

Corporate PPA Platforms Will Become a Marketplace
for the Aggregation of Buyers and Sellers

(Source: Guidehouse)

Who Will Capture Opportunities in Europe’s Changing Power Landscape? 

Corporate PPAs are rapidly changing the way large-scale power is being generated and purchased across Europe. As direct renewable power procurement spreads beyond large buyers, the need for cost-effective aggregation and risk management will create an opportunity for innovators to disrupt another segment of the power supply market. 

Several players have the potential to cease this opportunity: utilities willing to reinvent the way they serve their customers, oil & gas traders with the scale to handle large volumes of risk or tech companies with the ability to create digital marketplaces for power trading. Europe’s power market is certainly going through a major shake-up, but the ultimate winners and losers have yet to emerge.