Wednesday 4 September 2019

Guest Blog: Haydn Young – The rise of the Power Purchase Agreement

Attend any energy event in 2019 and you’ll hear about Power Purchase Agreements (PPAs).

PPAs are contracts between renewable electricity generators and purchasers, typically for a long duration, that enable purchasers to have a fixed price certainty and generators to invest in renewable generation to supply the power.

If the purchaser has available land or roof space, they can sign up to Private Wire PPAs and if not, Sleeved PPAs or Synthetic (Hedging) PPAs are suitable options.

PPAs aren’t new - over the last five years, 16GW of renewable generation has been contracted through both Sleeved and Private Wire PPAs, however they have made a big noise in 2019.

Making investments happen

One of the key advantages of PPAs is the link between the contract and subsequent renewable investment. By signing a PPA, you’re supporting a new generation capacity that will feed new renewable energy directly (if it's private wire) into your property or into the grid.

This is great news for businesses that are keen to support renewable energy growth. PPA provides a tangible outcome and knowing your investment creates a new infrastructure.

You can, of course, buy renewable energy via your energy suppliers through REGOs but these mechanisms chase current renewable capacity and may not create new capacity.

So why the drive for PPAs now?

1. Market conditions: In contrast to the UK’s political climate, in 2019 PPAs investment climate has greater certainty. Solar panel prices have fallen by 50% since 2011 (according to BEIS) and the FITs removal has enabled the industry to shape itself in a subsidy-free world. Whilst returns have fallen, a level of certainty has risen, which favours well with long term investors.
2. Greater appetite: Many companies have made a concerted effort to save energy and continue to do so. Whilst this is ongoing, they can use their energy spend wisely through making a genuine difference in driving local renewable investments. The excellent RE100 initiative is encouraging members to go 100% renewable and has 150 companies signed up.

Want to know more? Come and meet me at Energy Live Expo on November 5th.

Haydn Young is an independent energy management expert and founder of  The Energy Club.

If you are an energy end user you can register to attend a club for free.