The potential for corporate PPAs in Europe

The invitation is out. There are a few celebrities who have come out in recent weeks to rave about wind farms – Dr. Who and Emma Thompson to name just two – but there is one big name we really want at our Quarterly Drinks next year: Red M&M.

Yes, Red M&M. He’s be perfect. He’s chocolatey; he’s been on TV; he’s redder than the button in the White House over which Donald Trump’s tiny hand is constantly hovering; and he likes wind farms. Later this year and in 2018, M&Ms owner Mars is to run a global campaign to raise awareness of a $1bn sustainability drive, which includes buying wind power – and Red M&M is its star.

Mars is also notable in the world of corporate power purchase agreements (PPAs) with wind farms, as it has done deals in the US and Europe. Corporates use these deals because they enable them to hit their green targets while giving certainty over the cost of their electricity. Even so, they are still very much a North American phenomenon and Europe is struggling to catch up. Why so?

That is a question WindEurope, SolarPower Europe and others will discuss at a two-day conference in Brussels next week, Re-Source 2017. It will look at why firms have been slow to sign renewables PPAs in Europe; whether project developers and owners are losing out as a result; and what can be done to address this.

There are a couple of significant reasons for this slow take-up.

One reason we have seen less of these PPAs in Europe than the US is because the incentives for renewables are so different. In Europe, governments have historically backed projects including wind farms with centrally-set feed-in tariffs. This has given owners guaranteed income, and little reason to go to corporate buyers.

The Contracts for Difference regime used for UK offshore wind farms poses a similar challenge. With CfDs, the government pays a subsidy on top of the market price of electricity to ensure that the project owner gets a guaranteed income that can make their scheme viable. Helpful, but also a disincentive to go elsewhere.

In contrast, the US has been more supportive for PPAs. The production tax credit has helped the wind industry to bring the cost of electricity below the project cost of traditional energy in many areas, and made renewables attractive to large firms.

But change is coming. In 2016, renewables PPAs totalling over 1GW were signed in Europe, and governments are ditching centrally-set FITs in favour of auctions where they can pay less in the way of subsidies. We expect more project owners to look at PPAs as a way to mitigate the risks of fluctuating power prices.

A second obstacle to the growth of PPAs in Europe is that there has been no clear framework from the European Union to support corporates that want to sign PPAs – although, with FITs in place, there has been little demand for such a framework. The European Commission’s Clean Energy Package should help remove some barriers for would-be buyers – but this is still a work in progress.

These two factors have enabled US companies to make more progress on signing PPAs than European counterparts, and we have seen a mix of technology giants (Amazon, Google, Microsoft) and others (Ikea, Mars, Wal-Mart) entering the fray.

And a third reason for the slow take-up in Europe is, arguably, cultural. Over many decades we have seen a tension in countries like Germany over whether the growth of renewables should be led by top-down government targets or the bottom-up work of activists. Corporates would inevitably get some people's backs up.

Even so, we expect PPA activity in Europe to pick up with the move away from FITs and changes in the Clean Energy Package. And this should help investors in wind. These PPAs give developers and their financial backers the security of income they need to start work on new schemes; and that certainty is also attractive for investors that might buy the development post-completion.

But we’ll let Red M&M go into more detail on that.

The invitation is out. There are a few celebrities who have come out in recent weeks to rave about wind farms – Dr. Who and Emma Thompson to name just two – but there is one big name we really want at our Quarterly Drinks next year: Red M&M.

Yes, Red M&M. He’s be perfect. He’s chocolatey; he’s been on TV; he’s redder than the button in the White House over which Donald Trump’s tiny hand is constantly hovering; and he likes wind farms. Later this year and in 2018, M&Ms owner Mars is to run a global campaign to raise awareness of a $1bn sustainability drive, which includes buying wind power – and Red M&M is its star.

Mars is also notable in the world of corporate power purchase agreements (PPAs) with wind farms, as it has done deals in the US and Europe. Corporates use these deals because they enable them to hit their green targets while giving certainty over the cost of their electricity. Even so, they are still very much a North American phenomenon and Europe is struggling to catch up. Why so?

That is a question WindEurope, SolarPower Europe and others will discuss at a two-day conference in Brussels next week, Re-Source 2017. It will look at why firms have been slow to sign renewables PPAs in Europe; whether project developers and owners are losing out as a result; and what can be done to address this.

There are a couple of significant reasons for this slow take-up.

One reason we have seen less of these PPAs in Europe than the US is because the incentives for renewables are so different. In Europe, governments have historically backed projects including wind farms with centrally-set feed-in tariffs. This has given owners guaranteed income, and little reason to go to corporate buyers.

The Contracts for Difference regime used for UK offshore wind farms poses a similar challenge. With CfDs, the government pays a subsidy on top of the market price of electricity to ensure that the project owner gets a guaranteed income that can make their scheme viable. Helpful, but also a disincentive to go elsewhere.

In contrast, the US has been more supportive for PPAs. The production tax credit has helped the wind industry to bring the cost of electricity below the project cost of traditional energy in many areas, and made renewables attractive to large firms.

But change is coming. In 2016, renewables PPAs totalling over 1GW were signed in Europe, and governments are ditching centrally-set FITs in favour of auctions where they can pay less in the way of subsidies. We expect more project owners to look at PPAs as a way to mitigate the risks of fluctuating power prices.

A second obstacle to the growth of PPAs in Europe is that there has been no clear framework from the European Union to support corporates that want to sign PPAs – although, with FITs in place, there has been little demand for such a framework. The European Commission’s Clean Energy Package should help remove some barriers for would-be buyers – but this is still a work in progress.

These two factors have enabled US companies to make more progress on signing PPAs than European counterparts, and we have seen a mix of technology giants (Amazon, Google, Microsoft) and others (Ikea, Mars, Wal-Mart) entering the fray.

And a third reason for the slow take-up in Europe is, arguably, cultural. Over many decades we have seen a tension in countries like Germany over whether the growth of renewables should be led by top-down government targets or the bottom-up work of activists. Corporates would inevitably get some people's backs up.

Even so, we expect PPA activity in Europe to pick up with the move away from FITs and changes in the Clean Energy Package. And this should help investors in wind. These PPAs give developers and their financial backers the security of income they need to start work on new schemes; and that certainty is also attractive for investors that might buy the development post-completion.

But we’ll let Red M&M go into more detail on that.

The invitation is out. There are a few celebrities who have come out in recent weeks to rave about wind farms – Dr. Who and Emma Thompson to name just two – but there is one big name we really want at our Quarterly Drinks next year: Red M&M.

Yes, Red M&M. He’s be perfect. He’s chocolatey; he’s been on TV; he’s redder than the button in the White House over which Donald Trump’s tiny hand is constantly hovering; and he likes wind farms. Later this year and in 2018, M&Ms owner Mars is to run a global campaign to raise awareness of a $1bn sustainability drive, which includes buying wind power – and Red M&M is its star.

Mars is also notable in the world of corporate power purchase agreements (PPAs) with wind farms, as it has done deals in the US and Europe. Corporates use these deals because they enable them to hit their green targets while giving certainty over the cost of their electricity. Even so, they are still very much a North American phenomenon and Europe is struggling to catch up. Why so?

That is a question WindEurope, SolarPower Europe and others will discuss at a two-day conference in Brussels next week, Re-Source 2017. It will look at why firms have been slow to sign renewables PPAs in Europe; whether project developers and owners are losing out as a result; and what can be done to address this.

There are a couple of significant reasons for this slow take-up.

One reason we have seen less of these PPAs in Europe than the US is because the incentives for renewables are so different. In Europe, governments have historically backed projects including wind farms with centrally-set feed-in tariffs. This has given owners guaranteed income, and little reason to go to corporate buyers.

The Contracts for Difference regime used for UK offshore wind farms poses a similar challenge. With CfDs, the government pays a subsidy on top of the market price of electricity to ensure that the project owner gets a guaranteed income that can make their scheme viable. Helpful, but also a disincentive to go elsewhere.

In contrast, the US has been more supportive for PPAs. The production tax credit has helped the wind industry to bring the cost of electricity below the project cost of traditional energy in many areas, and made renewables attractive to large firms.

But change is coming. In 2016, renewables PPAs totalling over 1GW were signed in Europe, and governments are ditching centrally-set FITs in favour of auctions where they can pay less in the way of subsidies. We expect more project owners to look at PPAs as a way to mitigate the risks of fluctuating power prices.

A second obstacle to the growth of PPAs in Europe is that there has been no clear framework from the European Union to support corporates that want to sign PPAs – although, with FITs in place, there has been little demand for such a framework. The European Commission’s Clean Energy Package should help remove some barriers for would-be buyers – but this is still a work in progress.

These two factors have enabled US companies to make more progress on signing PPAs than European counterparts, and we have seen a mix of technology giants (Amazon, Google, Microsoft) and others (Ikea, Mars, Wal-Mart) entering the fray.

And a third reason for the slow take-up in Europe is, arguably, cultural. Over many decades we have seen a tension in countries like Germany over whether the growth of renewables should be led by top-down government targets or the bottom-up work of activists. Corporates would inevitably get some people's backs up.

Even so, we expect PPA activity in Europe to pick up with the move away from FITs and changes in the Clean Energy Package. And this should help investors in wind. These PPAs give developers and their financial backers the security of income they need to start work on new schemes; and that certainty is also attractive for investors that might buy the development post-completion.

But we’ll let Red M&M go into more detail on that.