Europe’s wind sector had a strong 2018 for corporate power purchase agreements, as deals of 1.9GW were signed. This gives us hope that they can drive construction of more wind farms, as we wrote in our European PPA Trends report last week.
We looked more at these trends and other aspects of corporate PPAs at our launch event in London on Thursday, which we held in association with sponsor Augusta & Co. and venue host Bird & Bird.
The event featured an expert panel of Augusta’s Mortimer Menzel, Bird & Bird’s Sophie Dingenen, BlackRock’s Keith Mangan, and Everoze’s Jo de Montgros; and an 75-strong audience of A Word About Wind members.
In this article, we’re going to share three of the key issues that we discussed on the day, with a particular focus on areas that we didn’t cover as much in the report
1) Should corporate PPAs be standardised?
After opening remarks from each speaker, the topic that kicked off most discussion on the panel was about standardisation of corporate PPAs. How would the need for bespoke corporate PPAs hinder uptake? Is it possible or desirable to standardise?
Mangan said that dealing with corporates was more complex than governments, due to the need for bespoke criteria: “When you have a government mandate… you just have to meet the criteria to get it. Corporate PPAs, and the negotiation around the structuring of them, are complex. The delay in the deployment and until it becomes a little more commoditised with the contracts.”
However, not everyone agreed with the idea of standardisation. Dingenen said standardisation of PPAs was only possible “to a certain extent” because of the different technologies and risk profiles, and added that the emergence of aggregated PPA structures could help buyers.
Menzel also said standardisation was not necessary: “Everyone has dreams of standardisation and simplification, but actually it’s the opposite that’s so valuable. It’s the fact that it’s a private contract that you can negotiate, and build in your own hedging. You can hedge it three times over if you want to,” he said.
After this, Mangan clarified that he wasn’t arguing in favour of standardisation, but was highlighting that it was nevertheless an impediment to the growth of PPAs.
2) Why should PPA signatories prepare up-front for renegotiation?
The discussion about standardisation led us in to talking about the risk in PPA deals and long-term power price forecasts. This is a topic that we cover in the report so we won’t go into great depth here, but this is a notable issue for firms signing PPAs.
Menzel called the forecasts “the most important thing in a transaction now” as every party has a slightly different view on the trajectory of power prices. This means that parties signing a corporate PPA in wind, which Dingenen said typically last 15-20 years, must also be prepared to renegotiate during the length of the contract.
De Montgros said this will be relevant as technology evolves: “I would argue that you should be locking in that renegotiation angle because sitting here today it’s very difficult to know what the demand side response market will look like in five years.”
Menzel agreed contracts should also be drafted “to give yourselves more leverage for when the inevitable renegotiation happens”. However, this can only add an extra layer of complexity when negotiating the deal. The panellists discussed that the responsibility for negotiating PPAs within major corporates and smaller companies often falls to those who lack energy experience.
Mangan said this lack of experience and internal politics often delayed deals.
“When you get down into the smaller organisations you’re either talking to somebody from the procurement department, who is usually buying the chairs and other parts for their business, and suddenly they’re being asked to sign a 15-year corporate PPA that then has to go to the board of directors and the C-suite,” said Mangan.
3) What’s the potential for PPAs in the UK and Spain?
We finished the discussion by focusing on some of Europe’s most promising markets for PPAs, including the UK and Spain.
In the UK, despite the very anti-wind stance of the government, Menzel said he was working on deals that showed confidence that corporate PPAs would come through: “We have a project in the market for Scottish wind – a couple of hundred megawatts – and it’s received extraordinary interest from big investors on the supposition there’s going to be PPAs… I take that as a really positive sign,” he said.
Meanwhile, Dingenen said she saw strong potential for synthetic PPAs in Spain and Portugal.
Synthetic PPAs are transactions where there is not a direct link between a particular wind farm and a corporate customer: If you can name one market that is absolutely adept to have synthetic PPAs then Spain is the one,” she said.
Menzel added that cross-border trading was becoming a strong possibility due to the use of synthetic PPAs and guarantees of origin (GOOs), which give companies more certainty over the provenance of the energy. We discuss this more in the report.
In conclusion, we don’t have the space here for a full rundown. However, we do have a transcript that we’re looking to tidy up and share with members who couldn’t attend on Thursday.
Let us know if this is of interest – and we hope to see you at one of our events very soon.