A corporate power purchase agreement (PPA) is an agreement between a corporate entity and an energy supplier.
The agreement typically outlines the amount of energy a business will receive, the price to be paid within a set period, and a price margin below or above which the energy price will fluctuate. In this way, corporations can secure a stable energy price long-term while also supporting renewable energy projects.
From strategy to implementation, at CFP Energy, we’re experts in structuring Corporate PPAs. Contact us today to see how you can start reducing your emissions long-term.
Understanding Corporate PPAs
With many other types of PPAs available, it's important to understand what makes a Corporate PPA different. The main features of a Corporate PAA can be defined as:
- A corporate PPA is a long-term power contract, usually between a customer and a supplier
- The customer agrees to buy power for a fixed cost over a designated period, usually 10-15 years.
- The supply usually includes renewables, helping businesses reduce their Scope 2 emissions
- Large corporate sectors, such as construction and shipping, benefit from predictable energy costs that frees up capital for investment elsewhere.
Unveiling the Power Grid: Traditional vs. Corporate Power Purchasing
Corporate PPAs, as distinct from utility PPAs, enable corporations to benefit from fixed cost arrangements that protect against long-term cost volatility.
Usually, PPAs are between a utility company and an energy generator. But corporate PPAs enable everyday businesses to benefit from the same arrangement.
Why Choose Corporate PPAs? Unveiling the Benefits for Businesses
Corporate PPAs provide a range of benefits for established and growing businesses alike. The following sections will explore and examine the kinds of benefits that PPAs bring.
The three main types of corporate PPA are sleeved, physical and virtual/synthetic.
Physical PPAs
Direct Generation: a physical PPA supplies power and any related renewable energy certificates (RECs) from a specific, i.e., locatable, renewable energy generator.
Directly Traceable: whether located on-site on the buyer’s property or off-site at a single location, physical PPAs ensure that delivery is traceable from end to end.
Sleeved PPAs
Off-site Generation: a sleeved PPA means that power generated from a renewable – i.e., wind, solar, biomass - is ‘sleeved’ to other sites, despite not being connected to the source.
Intermediary Supply: with sleeved PPAs, a third-party, usually a utility company, acts as an intermediary between a renewable energy generator and a consumer.
Virtual (VPPA) or Synthetic PPAs
Limited Obligation: within a VPPA contract, the corporate buyer doesn’t own and isn’t responsible for the physical electrons generated by the project.
Risk Management: VPPAs are solely financial agreements without. As they don’t include physical delivery, they act purely as a hedge against price fluctuations.
Beyond Cost Savings: Environmental and Sustainability Goals with Corporate PPAs
Sustainability is increasingly important in the corporate world. Whether through Corporate Social Responsibility (CSR) guidelines, or reporting and compliance standards like the Carbon Disclosure Project (CDP) or the UN Global Compact, companies must do all they to commit to environmental practice.
Corporate PPAs, although mainly used as a financial mechanism, can also help companies achieve their sustainability goals. PPAs do this in the following ways:
- By allowing access to renewable or low carbon energy, such as wind and solar, Corporate PPAs allow organisations to reduce their carbon emissions.
- Where generated from renewable energy projects, PPAs provide renewable certificates of origin (REGOs) to authenticate the energy supply’s carbon credentials.
- Through purchasing energy from a renewable supplier, via a Corporate PPA, PPAs help reduce carbon targets and guard against changes in legislation.
- By increasing the proportion of renewable power in an organisation’s energy mix, Corporate PPAs also help signal a social commitment to sustainability.
Finally, because PPAs are backed by the Contracts for Difference (CfD) mechanism, where the government pays the difference between the market price and the agreed strike price to the generator, energy producers are protected from the kind of market volatility that often disincentivises energy producers from investing in renewables.
By securing power generators and a stable revenue stream, Corporate PPAs reduce or remove the financial risks associated with investing in renewable energy projects.
Price Stability and Risk Management: Securing Long-Term Energy Security
Reduction of Capital Expenditure
One of the benefits of Corporate PPAs is their alleviation of capital expenditure. By allocating the costs associated with installing energy infrastructure to the supplier, PPAs enable companies to benefit from sustainable energy without the upfront costs.
Predictable Energy Costs
The predictability of PPAs represents another advantage for this product. By reducing or eliminating the risk of fluctuating energy costs, PPAs allow for more accurate budgeting and financial planning. This in turn helps support investment in green energy projects as businesses can free up capital and take on more exposure.
Energy Security
By reducing dependency on a single energy source, businesses are less likely to suffer from energy security issues, where imported energy might go up in price, whether due to internal government sanctions or ongoing political tensions. In addition, through diversifying and de-risking the energy mix, PPAs help secure national grid stability.
Your Partner in Power - CFP's Commitment to Renewable Energy & Sustainability
At CFP Energy, we help companies navigate complex PPAs, offering customised solutions that balance compliance, efficiency, and financial risk management.
We provide access to PPAs based on renewable and low-carbon energy sources, enduring long-term price certainty, enhanced green credentials, and risk diversification.
To further aid PPA initiatives, we also facilitate the purchase of renewable energy certificates (RECs) and other green products to help decarbonise your business.
Providing access to renewable and low-carbon energy sources, our PPAs help strategies your future, securing long-term energy security and protection against price volatility. From strategy to implementation, we’ll support you throughout your PPA journey.
Get in touch with our energy team today to see how we can structure your next PPA.
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