Energy Advice Hub’s Guide to
Corporate Power Purchase Agreements (CPPAs)
Corporate power purchase agreements (CPPAs) have become a popular choice for organisations looking to transition to a green energy supply and meet climate change targets.
BT, Nationwide, McDonalds, Tesco, Sainsbury’s and HSBC are just some of the big names who have signed up to CPPAs, but there are options for organisations of all sizes for green energy procurement that aren’t CPPAs. In this guide, we explain what CPPAs are, and how they could benefit your business.
A corporate power purchase agreement, or CPPA, is a long-term contract under which a business agrees to buy some or all of its electricity directly from a renewable energy generator, such as a solar or wind farm (which is connected to the grid). This differs from the traditional approach of simply buying electricity from licensed electricity suppliers.
As the UK moves towards decarbonisation, there is a constant need to build the next generation of renewable assets to meet demand. CPPAs help to finance renewable energy projects, as they give generators a guaranteed buyer and revenue stream for the energy they produce.
There are many reasons why organisations are turning to CPPAs:
CPPAs typically cover a period of between five and 20 years. The price per unit can be fixed throughout the full contract, helping to protect businesses against a potentially volatile market.
Most CPPAs are priced at a discount to current market projections in order to secure funding.
CPPAs do not stop you from changing energy suppliers, as you can take it with you if you move your supply contract.
By purchasing renewable energy from a specific generator, businesses can demonstrate a long-term commitment to supporting the growth of renewable energy projects.
Climate change has been pushed to the top of the business agenda in recent years. Signing a CPPA is one of the quickest, most straightforward ways for an organisation to meet sustainability targets. Renewable Electricity Guarantee of Origin certificates (REGOS) enable organisations to report zero carbon emissions for that electricity.
CPPAs allow organisations to identify exactly where their power is generated and show that it is from renewable sources.
There are broadly three different types of CPPAs:
A generator contracts with a corporate customer but the renewable asset is not located on or near the consumer’s site. Instead the energy produced goes onto the grid and a tripartite agreement allows the power to flow from the generator to the consumer via the consumer’s licensed supplier.
Typical CPPAs require:
A minimum price, or fixed price commitment.
Energy typically ‘sleeved’ between the generator and consumer, via the licensed supplier.
There’s no “one size fits all” in the world of CPPAs. The type best for your organisation depends on a host of factors, including your organisation’s size, financial ambitions, long-term sustainability strategy and approach to risk.
Other factors to consider include:
The process of choosing a CPPA partner is complex – but it can be broken down into 5 steps:
“Electricity from renewable energy will soon be cheaper – everywhere in the world – than electricity from fossil fuels”
Al Gore
Whilst CPPAs vary in duration, the typical contract length is 10 years as most renewable generators need a fairly long-term agreement in order to secure finance for the project.
As set out in this guide, there are 3 main CPPA structures and whilst there is no “one size fits all”, most UK corporates prefer to adopt either a Direct/Private Wire or Indirect approach as they provide a more transparent approach to sourcing renewable energy, rather than just a financial hedge under a Synthetic/Virtual CPPA.
Offtaker
The energy buyer (e.g. the corporate customer purchasing the energy).
Asset owner
The energy seller (e.g. the renewable energy generator).
