With subsidies disappearing, it’s been suggested that corporate PPAs signed directly between renewable energy plants and end users could keep the wind and solar pipeline moving. Three recent New Power interviewees weigh in…

 

Dan Wells, partner, Foresight:

“For unsubsidised renewables to work, we think corporate PPAs will be very important.” Wells is looking for projects that are not yet built but have a contract to sell power for a decade or more. “Then we think it might be investable, but probably the return profile and the currently perceived risk will make it more suitable for that higher-risk investor rather than the pension fund.” But he adds, “as that asset class becomes more mature, coupon-clipping investors will get more comfortable moving in”.

He notes that Foresight has acquired the largest solar farm in the UK, Shotwick, “and that has a corporate PPA, but they are very rare”. How can the market be developed? He says: “The most important thing is developing a culture of [businesses] thinking about the electricity price in the long term. The US is much more advanced in that – CFOs there will happily think about power prices 20 years in the future.

“It’s a question of time and increasing familiarity [to grow that], there is no real shortcut.”

He also sees “definite potential” for so-called synthetic PPAs in the future. “The contractual structures are there – a plant owner and a corporate can just fix the price. In theory you could get a bunch of people signing up. It hasn’t really happened yet in the UK, but it does in the US.”

Read the full interview here: Electricity is in a ‘once-in-a-century restructuring’

 

Bertie Readhead, manager in energy and infrastructure advisory, JLL: 

“A key question about the PPA is the credit arrangements. How do you structure something that ultimately you could finance a renewable project off?” There is a mismatch in contract length. To be bankable it would usually need a 10-year agreement, but companies typically look at energy contracts of a few years or even just one year. Readhead speculates: “What you have is a series of short-term contracts. Can you aggregate that, in the sense that you would allow for a degree of voids, or an insurance product that would provide a wrap around that demand portfolio? Its an interesting area where people with specialties can look to structure something.” He adds: “It’s not that far from the idea of a collateral debt obligation, where you take a debt and you slice it up so different people have a different chance to reduce the risk profile.”

He says the idea is interesting because it bypasses the utility and the wholesale price. “Yes, you have to pay a charge for imbalance and a charge for the utility that is providing services to enable you to get power physically from A to B. It will come down to the network charging arrangements.” Ultimately, he says, “you have relegated the supply utility to a service provider for the network”.

Read the full interview here: Investors are ready to widen risk-return balances

 

Lee Mellor, director, Ancala Partners: 

“It’s a way to keep the solar market open. If you can get the fixed price with a PPA counterparty it is akin to ROCs and FITs. It depends on the quality of the counterparty,” says Mellor.

Are good counterparties out there? Clunie says Ancala has explored that option, but “unfortunately our sites weren’t big enough to provide what [the corporates] wanted”. He says corporates may not want to have the bother. “They have a million things to do and it’s not at the top of the list. There has to be a benefit for them on CSR or all-green energy.”

Is that lack of interest from energy managers, or at board level? There are structural issues. Clunie highlights the need for fast action: “When you are building a portfolio you need a PPA within a relatively short timeframe. You can get short-term PPAs, but the banks don’t really like that so much. The market has not lent itself to having the time to get new investors in.” And Mellor points out: “You have to get the PPA in place first and then the counterparty is taking a risk on the development of the park. It’s quite an involved process.”

Read the full interview here: Seeking steady returns