“A power purchase agreement is the most impactful way that any corporate can contribute to reducing carbon emissions across the world,” according to Juan Pablo Cerda, founder and CEO of Zeigo.
With the world’s largest asset managers threatening to withhold money from companies that drag their feet on sustainability; pressure from governments and citizens pushing companies towards net zero; and the removal of subsidies forcing developers to seek new partners, Cerda thinks the corporate PPA market is on the cusp of a boom.
Hence PPA marketplace platforms like Zeigo vying for supremacy.
“Finally, everyone is landing on the same page,” says Cerda. The challenge is developing a plot line that delivers a happy ending.
The buyers are starting to play their part, says Cerda. Net zero commitments from blue chip firms are coming thick and fast and many are binding their supply chains by the same rules. To avoid accusations of greenwash, they are also setting out methodologies that will ultimately leave little scope for fudge, says Cerda.
That means companies will start to move away from schemes that arguably contribute little to decarbonisation. Renewable Energy Guarantees of Origin (REGOs) might not cut it for much longer, some suggest.
“REGOs are not a very impactful way to contract renewable energy, they do not meet the ‘additionality factor’,” says Cerda. That is, “You are not replacing fossil fuel energy with green electrons by using REGOs – and that is what the world needs right now.”
That awakening – and possible tightening of regulation – is good news for platforms like Zeigo and others trying to build PPA marketplaces for the masses. But, as Ørsted CEO Henrik Poulson acknowledged last month, education is required on both sides of the deal.
“There is a knowledge gap between the corporate world and the impact of PPAs,” says Cerda. “Historically they have only been available to big tech companies and the like. What we are trying to do is simplify that process and democratise the way smaller firms can access clean power direct from generation – and know that they are replacing fossil fuel with renewables.”
To that end, the firm is working with law firm Bryan Cave Leighton Paisner to streamline legals, and Cerda hopes to further simplify heads of terms to just a few pages.
Not just for Tesco
The minimum commitment via the platform is 20GWh per annum. Given a corporate might take 20 per cent of their power via a PPA, that means the marketplace is open to firms consuming 100GWh per annum – effectively the mid market.
For context, Tesco might consume 2.5TWh per annum; a cleaning equipment manufacturer might consume 400GWh per annum, an investment bank with a data centre around 100GWh per annum.
To get further down the food chain, some companies are starting to develop aggregated PPAs – whereby multiple smaller buyers contract with a single provider, though these remain few and far between.
Cerda says Zeigo is “very focused” on aggregated PPAs, and says multiple offtakers can provide benefits for developers.
“There are a finite number of companies in the world with large energy consumption and AAA+ credit rating,” says Cerda. Packaging up buyers with lower credit ratings is viable and reduces the risk if one party defaults, he says.
For now, he thinks three or four offtakers is manageable. “Beyond that, if we want to get to 10 companies for one project, we need to get smarter in terms of standardisation,” says Cerda. Banks will also have to get more comfortable with the concept, he adds.
Power prices are currently soft. Cerda says that will “affect some positions for sure,” but does not undermine the business case for PPAs.
“The biggest enemy in terms of moving to renewable energy is time. The transition is not moving fast enough and the corporate sector is crucial to delivering net zero,” says Cerda.
“Fundamentally, we see a very strong business case for PPAs. It is just understanding how that is positioned within the overall energy buying strategy. It is a de-risking element, you are hedging your power price for the next 7-10 years,” he adds.
“For corporates, that makes a lot of business sense. We do not know what prices will do over that period, but having a diversified portfolio makes financial sense because it de-risks exposure to price and market volatility.”
Moreover, for companies planning to transact with the likes of Sainsbury’s and Microsoft, or seek finance from the world’s largest asset managers, genuine decarbonisation efforts, he says, are now table stakes.