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  • December 13, 2019
You are here: Home / Renewable Energy / Aurora: Murky markets undermining corporate PPAs

Aurora: Murky markets undermining corporate PPAs

June 22, 2018 By The Energyst Leave a Comment

Corporate PPAs were seen as the great hope of post-subsidy renewables. But they have perhaps received a disproportionate amount of attention in relation to the volumes of new renewables they have actually delivered, according to Aurora’s Hugo Batten and Dimitri Kyriazis. They argue that market opacity, high transaction costs and a lack of end-to-end expertise are hurdles to clear if PPAs are to make a meaningful contribution to decarbonisation.

Much is made of the contracts Google, Apple, Facebook and other large corporates that have struck to help ‘green’ their supply chains.

While corporate PPAs have the potential to deliver more renewables in a GB context, there are a few challenges associated with them, at least in GB:

  • Currently, the market is ill-liquid, opaque and the contracts that are struck between renewable generators and corporates are typically short
  • Because the market is opaque, it is not clear that corporate PPAs are helping finance new renewable assets (where the PPA would need to help cover both the capex and opex) or whether contracts are being struck with assets that have largely had their capex paid-off under subsidy regimes (and so can price more competitively). In this case, corporate PPAs do not help further decarbonisation, but do help improve the returns on existing assets
  • The volume of renewables brought on by corporate PPAs is unlikely to deliver the GWs of renewables needed to hit GB carbon targets. In short, the additional direct demand for green electrons from large corporates helps, but does not move the needle sufficiently
  • Uncertainty around future wholesale prices means that large corporates are more hesitant to sign longer-term PPAs. The unanimous market forecasts of returns to £70-80 per MWh look increasingly errant in retrospect – most market forecasters (government and private sector) have aligned on the Aurora view that wholesale prices are unlikely to rise above £50-60 per MWh in real terms over the long-term. With the potential of wholesale prices to remain relatively flat over an extended period, there is less urgency to utilise corporate PPAs to hedge against future power price rises
  • Corporate PPAs are structured in a number of different ways, and with different parties involved (e.g., direct bilateral contracts between generator and corporate; or with an off-taker in the middle who helps manages imbalance risks amongst other factors). Because of these quite radically different structures, standardising and making useful comparisons between separate PPAs remains challenging, increasing market opacity
  • There are a number of players who help facilitate corporate PPAs (i.e., the direct contracting parties, investment bankers, lawyers, commercial consultants and market forecasters, amongst others). Few have emerged with the full skill-set to act as end-to-end intermediaries increasing the complexity and costs of each individual transaction

Corporate PPAs will be a critical tool in facilitating additional renewables on the GB system, but the market will need to become far more liquid and transparent if they are to fully deliver on their potential and meaningfully drive the second phase of transforming and decarbonising our energy system.

Subsidy-free renewables is the over-arching theme of Aurora’s Summer Renewables Summit on 28 June. 

This article is an extract from a broader feature on renewable energy in the forthcoming July print issue of The Energyst. Subscribe for free here.

Related stories:

Scottish Power chief: You’re bonkers if you think we’ll build offshore wind subsidy-free

Vattenfall touts 1MW PPAs to fund South Kyle wind farm

Shell signs PPA with England’s largest solar farm

Better weather data and insurance hedges required for post subsidy solar?

Total and Reactive Technologies launch hybrid solar-flex PPA, seal 310MW deal

Aurora: Bring renewables into reformed Capacity Market to save money

Aurora: EVs will not require new power stations

Aurora: GB could hit 30GW of offshore wind with balancing access and zero subsidy CfDs

Aurora: Battery storage, DSR and peakers to hit 25GW

Half of small generators ‘could give up capacity market contracts’ after Triad cuts

Helm gives government more than they bargained for

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