Blog: Just what is a Corporate PPA anyway?

23 Aug 2019

Deals signed between Amazon and Invis Energy suggest the Corporate PPA market may be taking off. In our latest blog IWEA's Justin Moran explains how private investment could help develop the next generation of wind farms and how a PPA actually works.

What is a Corporate PPA?

In the wind energy industry a Corporate PPA refers to a Power Purchase Agreement (PPA) between a wind farm and, typically, a business that uses a large amount of electricity like a data centre or pharmaceutical and high-tech manufacturers.

There are also examples of PPAs being signed by groups of smaller businesses or companies whose power demands may not be high but wish to ‘go green’.

Under a PPA the business agrees to buy electricity from the wind farm at a fixed price for an agreed number of years. The full details are set out in a contract between the wind farm and the business.

Benefits of a Corporate PPA

For the large business buying their electricity through a Corporate PPA means they can be certain of the price they’re going to be paying for power for years to come while also ensuring they are playing their part in reducing CO2 emissions.

The developer now has a guaranteed source of income for the duration of the contract which gives them the financial security they need to build the wind farm.

And it’s a good deal from the point of view of the electricity consumer. Because the wind farm is built as a Corporate PPA project it doesn’t receive the support provided to other wind farms through the PSO levy on your electricity bill.

It also helps Ireland to achieve our targets for renewable energy and reducing our CO2 emissions.

How does it work?

Physically delivering power from an individual wind farm to a data centre or factory which could be across the country is impractical and would be very expensive although there are a few examples of PPAs like this.

More common is what is known as a ‘synthetic PPA’.

Under this system the wind farm sells its electricity on the wholesale market like any other generator. That power is bought, as normal, by an electricity retailer like Electric Ireland or Energia who sell it on to domestic and business consumers.

If the wholesale electricity price is lower than what was agreed between the corporate and the wind farm then the corporate steps in to make up the difference.

If the wholesale electricity price is higher than what was agreed then the wind farm pays the difference back to the corporate. This is known as a Contract for Difference or CfD.

It might be easier to explain with a hypothetical example.

Example of a PPA

Botanic Wind Farm is 20 MW wind farm. It can expect to generate around 52,000 MWh of electricity every year. Instead of getting its funding through a Government support scheme Botanic Wind Farm enters into an agreement with Carlingford Data Centre.

The data centre will use 52,000 MWh of electricity over the year. Under the terms of the PPA the data centre agrees to ‘buy’ the 52,000 MWh of electricity the wind farm will produce for €60 per MWh.

This means the data centre knows exactly how much they will be paying for electricity for their power and it means the wind farm has a guaranteed income.

Now, when Botanic Wind Farm is selling its power on the wholesale market, the data centre will make up the difference if the price on the market is less than €60. And if the wholesale price rises above €60 then the wind farm refunds the difference to the data centre.

The electricity that physically flows into the data centre is the same mix of wind energy and fossil fuels as it is for everyone else.

But because the data centre’s total electricity demand across the year is the same as the amount produced by the wind farm it can fairly say that it is powered by renewable energy – after all the wind farm would not have been built without the PPA.

To ensure that the corporate can stand over its claims to be powered by renewable energy it would normally then obtain a Renewable Energy Guarantee of Origin (REGO) confirming that the electricity they are using comes from renewable sources. In Ireland, the Guarantee of Origin system is overseen by SEMO, which operates the electricity market.

There are several different kinds of PPAs and this is just one example. Another, expected to be common in Ireland, is a ‘sleeved’ PPA where the corporate buys the power from the wind farm through a third party – its electricity retailer – for a small additional fee.

The retailer then guarantees to top up the renewable electricity with extra power if needed, for example when the wind might not be blowing.

Future of PPAs in Ireland

While there are several PPAs already in operation in Ireland only in 2019 have we seen PPAs signed that are to fund new wind farms.

Globally, the cost of wind energy is continuing to fall and we expect to see the corporate PPA market grow in years to come as more and more large energy consumers look to go green.

Under the Climate Action Plan the Government hopes that 15 per cent of our electricity demand will be met by renewable energy sources contracted under PPAs by 2030.

The Irish Wind Energy Association has set up a working group bringing together wind farm operators, financial advisers and energy market specialists to develop ideas and policies to help make the Government’s ambition a reality.

We are working to identify ways to make it easier to support the development of Corporate PPAs in the year to come as an alternative route to market for wind farms.