The Continued Rise of Corporate PPAs

The growing global popularity of corporate power purchase agreements (PPAs) was proved beyond doubt in the last year.

Despite the COVID-19 pandemic, a global recession and uncertainty about US energy policy ahead of the US presidential election, corporate clean energy buying increased by 18% in 2020.

In total, corporations around the world purchased 23.7 GW of clean energy in 2020, up from 20.1 GW in 2019 and 13.6 GW in 2018, according to data published by Bloomberg NEF.

What is a power purchase agreement (PPA)?

A power purchase agreement (PPA) is a contractual agreement between an energy buyer and an energy seller. 

The two parties agree to buy and sell an amount of energy which is, or will be, generated by a renewable asset. Usually, PPAs are long-term deals that cover a period between 10 and 20 years.

Which country has the biggest PPA market?

The US was again the largest PPA market in 2020, though the total volume of PPAs signed decreased, largely due to the pandemic – this was the first year-on-year drop since 2016. 

Companies announced a total of 11.9 GW of corporate PPAs in the US in 2020, down from 14.1 GW in 2019.

There was also a decline in the volume of PPAs signed in Latin America in 2020. Businesses announced a total of 1.5 GW of corporate PPAs, a 25% decrease on the 2019 total of 2 GW.

Which regions have the fastest growing PPA markets?

Despite declines in the number of corporate PPAs signed in North America and Latin America, there was a dramatic increase in PPAs in Europe, the Middle East and Africa (EMEA).

PPAs in EMEA nearly tripled in 2020 to 7.2 GW, up from 2.6 GW in 2019. There was a particularly significant rise in Spain, where companies announced contracts totaling 4.2 GW in 2020, a 14-fold increase on the previous year’s total of 300 MW.

Corporations in the Asia Pacific (APAC) region also had a record-breaking year for PPAs in 2002, announcing contracts for 2.9 GW, up from 1.2 GW the previous year.

Which companies are the biggest buyers of renewable energy?

Research by the Renewable Energy Buyers Alliance (REBA) revealed that Amazon was the biggest corporate buyer of renewable energy in 2020. The online retailer procured a total of 3.163 GW of renewable energy last year.

The top 10 companies by renewable energy procured in 2020, according to REBA, were:

Rank Company Volume procured (GW)

What are the different types of PPA?

Corporate PPAs are, broadly speaking, divided into two types: synthetic/virtual PPAs and sleeved or physical PPAs.

• Synthetic/Virtual PPAs
  These are effectively a financial derivative whereby the parties agree a ‘strike price’ – payment flows are determined by comparing the strike price against a market reference price. They do not involve the physical delivery of output to the buyer or a utility agent of the buyer. These agreements could be structured in a number of ways. They may be two-way or one-way, for example. Under a two-way deal, if the market reference price is higher than the strike price, the generator pays the difference to the buyer. However, if the market reference price is lower, the buyer pays the difference to the generator.

• Sleeved or Physical PPAs
  These frequently (though not always) involve a direct PPA between a corporate buyer and the energy generator. The corporate buyer normally enters into associated arrangements (which will be managed by the corporate buyer itself or via a utility) that mean the output purchased can be used for the benefit of the corporate’s wider facility load.

What is the outlook for Corporate PPAs?

It is anticipated that between 44 GW and 72 GW of corporate PPAs will be signed in the US alone before the end of the decade. 

Meanwhile, it is anticipated that the RE100 – a group of more than 300 companies “committed to 100% renewable electricity” – will sign PPAs that could lead to 93 GW of new renewables projects by 2030.