I am an associate in our International Commercial Group based in London. Having spent 6 months training in our Energy & Utilities sub-group, and 6 months training in our Technology Transactions sub-group, I have experience across a broad range of commercial contracts and projects. This has ranged from international SaaS projects, all the way through to district heating supply projects.
Entering into a corporate PPA is the most optimal route of purchasing power for corporates looking to achieve their sustainability targets by buying green power whilst benefitting from a long-term pricing model. A corporate customer is able to demonstrate its commitment to sustainability through having a direct contractual relationship with the power generator, and at the same time, can hedge its cost risk through the price certainty that comes with these 10 to 20 year agreements, depending on technology.
Corporate PPAs broadly take form in the following 3 structures:
the “Sleeved” PPA
the “Synthetic” PPA
the “Private Wire” PPA
You can find a general summary of the key features of each model, as well as their strengths and weaknesses in our comparison table below.
Model
Key features
Strengths
Weaknesses
The “Sleeved” PPA
Generator sells powerdirectly to the corporate customer under a PPA (PPA)
An intermediary (often an energy supplier or a utility) ‘sleeves’ the power through the grid to the corporate customer at its site under a second PPA (Sleeving Arrangement)
The energy supplier/utility performs a balancing service to top up the power if needed
Financial: sometimes the corporate customer may make an investment into the generator itself to support the project (and open a new revenue stream in potential dividends)
Regulatory Environment: there is no need to demonstrate any extra regulatory compliance over the usual
Geographical Location: the generator, energy supply company/utility and the corporate customer must all be located on the same grid, and so the sleeved model would not work across grids in different EU states, or US states
Structure: two back-to-back contracts for the sale of power makes sleeved corporate PPAs slightly more complex than its synthetic counterpart and reduces the flexibility to change suppliers
The “Synthetic” PPA
Synthetic PPAs do not involve the physical delivery of power
Generator sells power to a utility company at market price
The utility company continues to sell power to the corporate customer at market price
Separately, the generator and the corporate customer enter into a contract for difference, option or other financial hedge in order to settle the difference between the agreed PPA price, the ‘strike price’, and the actual market price
Geographical Location: The generator, energy supply company/utility and the corporate customer can be located in different grids or even different countries
Structure: as there is only one contract for difference / option / financial hedge, the structure for synthetic PPAs tends to be more simple with more scope for flexibility of changing suppliers or adopting a multi-supplier model
Regulatory Environment: the contract for difference / option / financial hedge could be considered a regulated financial instrument which would require investigation and analysis into the necessity of any financial services authorisation or compliance obligations
The “Private Wire” PPA
Used where the source of power generation is co-located or located close by to the power purchaser, bypassing the traditional national power grid
Also referred to as Behind-the-meter PPA
Exclusivity: commonly in private wire PPAs, the corporate customer benefits from the supply of power on an exclusive basis, this can mean greater levels of control and supports the growth of localised renewable energy
Financial: avoiding national grid charges and policy costs, and the potential for the power supply project to fall under one of the electricity class exemption orders allows for significant savings to be made
Geographical Location: the generator must be located at or near the corporate customer’s assets
Financial: the costs associated with installation and maintenance of the private wire structure should be considered and factored in
Corporate PPAs are relevant on a global scale. Traditionally, the preferred contract structure for PPAs in the USA is synthetic and where the cPPA hype started out in Europe to be a more sleeved PPA market, the market is now also moving towards virtual arrangement. However, synthetic PPAs are gaining popularity in Europe, due to it being a simpler contract to enter into. At Bird & Bird, we have truly international reach, which has allowed us to develop and negotiate innovative PPA structures across a range of jurisdictions – from sleeved and synthetic PPAs to the more recently emerging blockchain PPAs.
If you would like to find out more, please visit our Corporate PPA Hub or get in contact with us.