Corporate wind and solar power sourcing in the EU grew by another 2.5GW last year, taking total capacity of renewable power purchase agreements (PPAs) to-date in the region to over 8GW, according to the latest figures from RE-Source, a joint platform set up by advocacy bodies WindEurope, SolarPower Europe, the RE100 and the World Business Council for Sustainable Development.
But in a new report, Risk Mitigation for Corporate Renewable PPAs , RE-Source found that risk-aversion is keeping the European corporate PPA market from growing to match the scale of that in the US, where roughly 16GW of the nearly 20GW bought worldwide last year were contracted.
“The corporate sourcing market in Europe has taken off over the last few years. In 2018, there were 1.3GW and 2.1GW of commercial and industrial on-site renewables contracted respectively [and] in 2019 alone, over 2.5GW of offsite PPAs were contracted,” said the report authors.
“As renewables become the main energy technology for large energy companies and new renewable energy suppliers enter the market, corporates are increasingly interested in signing long-term PPAs [and] it is essential they gain an understanding of the risks they could be exposed to.”
“Corporate PPAs are a win-win-situation for renewable energy buyers and sellers. By offering long term revenue stabilisation, PPAs allow developers to obtain financing to build wind energy projects and drive the energy transition, said Guy Brindley, senior analyst at WindEurope and RE-Source.
“For clean energy buyers they offer cheap and stable pricing and competitive advantages in an increasingly carbon-free world. Our report aims to assist corporates on this path and show how other stakeholders like utilities, insurers and energy exchanges can support them.”
The RE-Source report points to a survey of 1,200 companies across six countries carried out last year that showed that 92% of corporation sourcing renewable power are “doing so in order to reduce energy costs”, noting that companies’ decarbonisation pledges often provide the initial driver but that the ability for a PPA to cut energy cost volatility and reduce electricity bills over the long term “is cited by most corporates as providing the main business case”.
“The potential for the renewable corporate sourcing market in Europe, which includes both PPAs and other forms of corporate sourcing , is significant,” said the report authors. “Europe has a less mature market than the US in this respect, where renewable PPAs have been commonplace since 2013.”
The report from RE-Source, which is backed by corporates including Amazon, Facebook, Google and Microsoft, as well as utilities Enel, Engie, Iberdrola and Stakraft, highlights the potential for growth for PV in supplying corporates renewables PPAs in a market that to-date has been dominated by wind-powered deals.
“Around 85% of corporate renewable PPAs in Europe have been signed for wind energy. This is largely because much of the activity has been focused in Norway, Sweden and the UK; all countries with a high wind resource.”
But in 2019, the report authors spotlight, solar PPAs accounted for almost 30% of the contracted capacity, including 199MW contracted by Amazon Web Services in Spain, 160MW contracted by Google in Denmark, and 143MW signed in France by SNCF.
“Long-term PPAs are used by renewable power plant developers to secure a project’s future income and provide assurance to lenders that loans can be repaid; in other words: to improve a project’s bankability in the absence of stable income from government support schemes,” said the report. “However, these PPAs have an inherent number of risks which corporates are typically not used to dealing with.”
The report authors stressed that corporate renewable electricity sourcing is set to play “a large part” in reshaping the regional economy during the energy transition, as companies entering the market manage the risks linked to long-term energy contracts that have historically been dealt with in Europe by utilities with “a deep understanding of the energy market” and large diversified portfolios of projects and technologies.
“Corporates are increasingly looking at ways in which they can reduce the impact of their own operations on the environment, both for reputational reasons and to gain a competitive edge in a society in which awareness and the importance of environmental impacts are ever increasing.”
“These risks need to be engaged and owned by corporates who generally do not have expertise in the area. This is one of the main barriers to the development of PPAs throughout Europe. This report, which will be one of the tools [to help in this].”
“The European Commission has set ambitious targets to decarbonise the European economy, improving the environment, industry, and society,” said Mercè Labordena, senior policy advisor at SolarPower Europe and RE-Source . “Corporate PPAs are playing an important role in the transition to a cleaner economy by providing solar plant developers certainty on future revenues.”
Analyst group Bloomberg New Energy Finance (BNEF), in its 1H 2020 Corporate Energy Market Outlook, totted up that 19.5GW of renewable energy contracts had been signed by more than 100 corporations in 23 different countries in 2019, up from 13.6GW in 2018, and more than triple the activity seen in 2017.