Corporate PPAs: Interest stays high despite volatility

Volatile energy markets have not de-railed corporate appetite for green power, but new structures and deal tenors are emerging. We look at 2022 figures on corporate PPA activity from both sides of the Atlantic.


February 22, 2023

Volatile energy markets have not de-railed corporate appetite for green power, but new structures and deal tenors are emerging. We look at 2022 figures on corporate PPA activity from both sides of the Atlantic.

US: Solar extends its lead

The American Clean Power Association published a report, ‘Clean Energy Powers American Business’, last month showing commercial and industrial companies in the US signed 20GW of green energy deals in 2022. That is 4GW higher than 2021.

Overall, 77GW of corporate deals for renewable energy have been signed in the US in total, and 47% of the capacity is now operation. Over 58% of that (45GW) relates to deals at utility-scale solar farms, and 38% (29GW) is for onshore wind power.

The top four buyers are the usual tech suspects: Amazon (12.4GW), Meta (8.7GW), Google (6.2GW) and Microsoft (4.5GW). The report also shows 61% of contracted corporate clean energy deals are with the 20 largest players (see graph, below).

But the sectors aren’t performing equally well. The ACP shows that solar power purchase agreements (PPAs) in the US have grown year-on-year for the last eight years, to a record 14.4GW in 2022. However, the wind sector had only its third-highest year on record in 2022, with 4GW of corporate PPAs – which is behind the 5GW annually in both 2018 and 2019. Solar is far outstripping wind.

Does this matter? Not necessarily. Most investors, utilities, financiers and advisors would be active in both wind and solar, so are not over-exposed to either. But this is an additional headache for turbine makers already being punished by inflation.

It is also a tangible example of the influence of energy storage technology, which is supporting solar farms to supply predictable power to off-takers. Wind-and-storage projects are less common, with only 12 corporate deals totalling 548MW agreed at three such hybrid schemes in the US in 2022. But this is set to grow.

Finally, these figures remained strong despite the rising price of renewable energy in the US last year: the ACP reported that average solar PPA prices were up 30% year-on-year in 2022, with wind costs up 37% in the same period to an average of $49.66/MWh last year. That is probably due to the fact that firms still need to show they are going green and also wanted to lock in power prices in a rising market.

Europe: Managing volatility is key

Europe enjoyed a relatively strong year for PPAs in 2022, according to research published this month by Pexapark in its ‘European PPA Market Outlook 2023’ report. This is notable given the huge volatility in Europe as a result of the Ukraine war.

Pexapark reported the total volume of contracted renewable energy deals fell by 21% to 8.4GW in 2022, from 10.7GW in 2021. However, it noted that the amount of corporate PPAs rose 21% year-on-year to 7GW in 2022, and that more deals were signed in 2022 than the year before. There was a major fall in utility off-take deals.

The company argued that corporate PPA activity stayed high in 2022 because firms saw PPAs as a way to gain certainty over prices in a fast-changing market.

The largest off-taker for renewable power in Europe in 2022 was the aluminium producer Alcoa, which signed a 924MW PPA with Greenalia and a 131MW PPA with Endesa, both for wind power. But tech giants remained the largest sector overall.

The report highlighted three trends that it saw in 2022 and it expects to continue this year. First, the emergence of short-term PPAs, which have grown in popularity in recent years as companies gain confidence to trade on the open market, and are now attractive for firms looking to fix energy prices for the short term.

Pexapark said it expected more energy buyers to become comfortable with using a mix of long- and short-term PPAs to manage price risks as volatility continues.

Second, it expects to see more ‘tripartite PPAs’, where a project owner, a utility and a corporate join forces to execute power deals, rather than simple deals between a project owner and energy buyer. Pexapark said this helps each party manage their own risks, and we can also see that such deals would be attractive to the larger cohort of financial investors that own assets and may lean on utilities’ trading skills.

Finally, it said there would be a greater share of renewables-and-storage projects that secure PPAs in 2023 and beyond. This would replicate a trend we see in the ACP data in the US, and includes wind farms co-located with energy storage.

Risk management will be vital for firms operating in the European PPA market this year, but both these reports suggest there will be continue to be good appetite for renewables on both sides of the Atlantic. Prices have risen but demand remains.

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