International law firm Bird & Bird’s annual Corporate PPA report, released in August, chronicles the major trends, countries, and legal structures that impact corporate buyers of renewable energy.
Clean Energy Pipeline spoke recently with Elizabeth Reid and Sophie Dingenen, Partners & co-Heads of Bird & Bird’s International Renewables Group, to break down the firm’s latest report, which found that, in 2021, more than 130 corporations in 32 different countries purchased 31.1 GW of clean power directly from generators under a Corporate PPA, up nearly 24% from the previous year.
Since then, supply chain issues and high inflation, led by skyrocketing energy prices, have dragged on the corporate PPA market.
Although these trends are expected to continue in the short term, Bird & Bird affirmed that long-term trends, particularly for corporate buyers, favour a transition to renewable energy.
“There was certainly a delay in renewable energy procurement in the beginning of this year where it seemed that all parties had to re-think their strategy; however, since the summer, we do see a general increase in PPAs being concluded again,” stated Dingenen.
“Generally, we are finding less demand for long-term, fixed pricing. Whilst many corporates are seeking to hedge against fluctuations in wholesale markets (and fix, given high short-term pricing and lower long-term pricing), volatility and uncertainty around government policies have left parties finding it difficult to agree on PPA terms.
“Instead, we see parties entering shorter term PPAs (2-3 years), often as a route towards a longer term solution once the initial contract has expired.
“In the long term though, concluding a PPA can still be favourable.”
In response to the current energy price crisis, Bird & Bird released a visual guide to the EU’s emergency market intervention measures, which can be found here.
Clean energy pipelines
Net Zero commitments, the low cost of renewable energy generation, and a renewed focus on security of supply will drive new development across Europe.
Dingenen highlighted several countries that feature prominently in the clean energy sector and the Corporate PPA market.
“The volume of renewable development pipelines remains high across Europe,” she commented.
“In terms of specific countries, I would say France, with its 750 MW floating offshore wind zone being a particularly exciting development.
“Spain too has fantastic natural resources for solar, as well as onshore wind; so, despite legislative and permitting issues, it still has a sizeable development pipeline and attractive PPA pricing.”
Dingenen also pointed to Germany, which brought forward its 100% renewable energy target to 2035, and the Netherlands, where renewable energy use increased 20% last year.
“Poland has launched tenders for three new offshore wind projects — targeting between 8-11 GW of production capacity by 2040 — and Italy is tendering for 3.5 GW of floating offshore wind over the next five years,” continued Dingenen.
“Belgium is certainly one to watch as they are set to produce 10% of their electricity demand from offshore wind in 2021, with installed capacity expected to double thanks to a new offshore development zone.
“Finally, the UK has very strong offshore wind resources, a large solar development pipeline, and is an attractive market for corporate PPA offtakers.”
Adopting new technologies
In addition to new markets, the corporate PPA market is increasingly adopting new technologies, such as energy storage, offshore wind, and green hydrogen, as their respective business cases improve.
“Battery storage is one of these key areas seeing new development and investment,” stated Reid.
“For example, the UK had a record subsidy into 1.1 GW of battery storage projects in early 2022, although this still only represents a small proportion of the overall subsidies in the energy market.
“Other key energy storage methods currently in development include compressed air storage, mechanical gravity storage, and flow batteries.”
Higher capacity turbines and a mature industry across the offshore wind lifecycle are helping countries unlock immense amounts of offshore wind energy. In the most advanced markets, offshore wind farms can be financed entirely with debt and sell a majority of their capacity through a corporate PPA.
Despite this maturation, offshore wind remains a largely untapped resource, with much of the world’s capacity located in deeper waters and only accessible by floating turbines.
There are a handful of small-scale projects already installed and several governments that have incorporated floating developments into current and future offshore wind auctions. Floating wind farms are therefore projected to flourish over the coming years.
“The viability of floating offshore wind is increasingly being looked at to harness the stronger and more consistent winds found around deeper water,” said Reid.
“Global floating offshore wind production is forecast to hit 29.8 GW by 2040, according to EY.
“Scaling the production of these projects is the key factor in reducing the cost per MW, with an aim to halve the current cost at scale.”
Greater project scale and higher capacity factors in floating offshore wind farms, as seen at Hywind Scotland, are also enabling innovations, such as green hydrogen production.
“The use of offshore wind in hydrogen production has become a highly attractive method of circumventing production issues when demand is low and grid storage capacity is insufficient,” added Reid.
“These synergies between the emerging technologies demonstrate the importance of diverse investment and development across different technologies when aiming to achieve Net Zero.”
Bird & Bird also releases an annual green hydrogen report that can be found here.
An evolving market
Long-term commitments to Net Zero, coupled with high energy prices and greater market volatility, have also driven innovations in the corporate PPA market, with firms like Bird & Bird leading the charge.
“Our Energy & Utilities Sector Group is divided into Priority Development Areas (PDAs) and these are adapted to adhere to developments in the market,” commented Dingenen.
“Our PDAs are always under review as to whether these are still a good reflection of the market.”
Bird & Bird’s Corporate PPA report details recent developments in both sleeved and synthetic PPAs.
Sleeved PPAs require a physical link between the electricity generator and the corporate buyer. This model directly increases the supply of renewable energy on the grid and makes for a straightforward verification process when affirming the source of the electricity.
Sleeved PPAs continue to be popular, however Dingenen notes that, “In terms of different structures, we see an increased interest in virtual PPAs, rather than sleeved PPAs.”
Bird & Bird’s report highlights two types of virtual offtake deals: the 24/7 model and the blockchain PPA.
“Google has set a new bar with the 24/7 PPA concept,” continued Dingenen.
“The general idea is that at any time of the day, the energy consumed is renewable, instead of a mix with grey electricity at certain hours.”
Meanwhile, blockchain PPAs, although not as new as Google’s 24/7 concept, are also in their infancy. These agreements virtually match generator supply with consumer demand to open a route-to-market for a broader range and volume of corporate energy consumers.
At the moment, corporate buyers are entering shorter term blockchain PPAs (around one year) to trial the solution. Blockchain PPAs are therefore not enough on their own to ‘bank’ a project, although Bird & Bird expects this to change as regulatory markets adjust and the technology becomes more established.
The corporate market for both sleeved and synthetic PPAs has slowed since Bird & Bird’s last report, but is expected to pick back up in the long run as corporates attempt to meet their renewable energy and emissions reduction targets.
“While there is no doubt that current market volatility and regulatory uncertainty around price caps have caused a slow-down in the uptake of corporate PPAs in 2022, the fundamentals of high demand for green power and long term price certainty mean we have no doubt that there will be further global growth in this market,” concluded Reid and Dingenen.