5 common CPPA myths explained: What energy buyers need to know

Myth 1. “CPPAs are only for large corporates”

Why people believe it

Historically, CPPAs primarily suited much larger buyers with substantial, predictable energy demand. This was because renewable projects needed sufficient long-term revenue certainty to support their financing. As a result, buyers needed strong credit and to commit to significant volumes of electricity over longer periods to make these projects commercially viable.

The reality

Today, CPPAs are no longer limited to the largest energy users. New contract structures mean smaller organisations, like universities, logistics and distribution centres or small factories, can access many of the same benefits, often with greater flexibility.

One option for these buyers is a multi-buyer CPPA. Multi-buyer CPPAs allow renewable generators to sell power from a single asset to several organisations, enabling smaller volumes and more flexible contract lengths.

At Drax, we offer the Galloway CPPA. This is a baseload PPA from our hydro assets. It enables buyers to contract power from a single asset, helping make renewable power accessible to a broader range of buyers.

What does this mean for energy buyers?

For energy buyers, organisation size no longer needs to be an automatic reason to rule out a CPPA. New contract structures allow smaller buyers to make the most of CPPA benefits without committing to longer contracts or larger volumes.

Myth 2. “CPPAs are only about sustainability”

Why people believe it

There’s truth in this myth, as CPPAs do offer sustainability benefits. They can support renewable generation while providing greater traceability by procuring energy from a named, known source. These benefits support a business’ overall decarbonisation goals and demonstrate a long-term sustainability commitment.

The reality

CPPAs offer far more than just sustainability benefits. The fixed pricing structure also provides price stability and can insulate businesses during periods of market volatility. Myth no.5 explains these additional benefits in greater detail.

What does this mean for energy buyers?

Understanding the wide range of benefits beyond just sustainability can help you use CPPAs as part of your overall energy and risk-management strategy, rather than solely as a sustainability tool.

Myth 3. “You have to lock into a CPPA contract for 10-15 years”

Why people believe it

Traditionally, when CPPAs were introduced to the market, they related to new-build projects. Building these assets required developers to borrow significant amounts of project finance, which would typically be repaid over many years. As a result, developers needed 10-15 year contracts to secure enough revenue to pay off the project's debt, as well as to ensure they would generate reliable income over that time.

The reality

The renewable energy market today is much more mature than it was 10-15 years ago. Many of these projects are already operational and have mostly paid off their debt. These projects don’t require the same level of project finance, and developers are able to sell shorter contracts with some providers, including Drax, offering 3-5 year contracts.

What does this mean for energy buyers?

The opportunity to invest in shorter term CPPA contracts makes them more accessible for the everyday – or smaller – buyer. Learn more about why CPPA contract lengths are shrinking.

Myth 4. “CPPAs are complex”

Why people believe it

CPPA contracts involve multiple considerations from a commercial, legal and financial point of view. They can also involve several parties and contracts, depending on the structure.

The reality

Whilst the traditional CPPA can involve complex structures, there are ways to make the process much simpler. One way to do this is to procure a CPPA directly with your energy supplier, which lets you better manage the risks associated with a CPPA. It also makes the contract more efficient because your supply contract most likely already covers most key terms and conditions.

At Drax, we offer a simple CPPA contracting structure that provides renewable power directly from one of our own assets. For existing supply customers, this additional contract is significantly less complex, and easier to digest, than an outsourced CPPA.

What does this mean for energy buyers?

Procuring a CPPA through your existing supplier can remove a lot of complexity from the contracting process, making it a much more accessible option for businesses.

Myth 5. “You should only consider a CPPA if it’s cheaper than a standard electricity contract”

Why people believe it

Price can be an important consideration when businesses procure electricity, so it’s natural to compare the cost of a CPPA with a standard electricity contract. If the CPPA price is higher, buyers may question its value if they’re unaware of the wider benefits it can provide.

The reality

CPPAs differ from standard electricity contracts because they’re designed to hedge against future market movements, rather than simply beat the market on price.

Neither generators nor buyers can predict what electricity prices will look like in future years. Unexpected events, such as the conflict in the Middle East and the Covid-19 pandemic, can cause significant market volatility and make long-term prices difficult to predict. A CPPA allows both parties to agree a price today for electricity supplied over a longer period. For the generator, this provides more predictable revenue. For the buyer, it provides greater cost certainty for the electricity covered by the agreement. This is the value of a CPPA – neither is looking to beat the market, but both are looking to manage their exposure to price movements.

In a CPPA, the electricity comes from a named and known source, so it’s more traceable than what you would typically get in your supply contract.

These longer-term price, market protection and additional sustainability protection benefits mean a CPPA isn’t always directly comparable with electricity purchased through a standard supply contract. The two approaches serve different purposes and manage risk in different ways and therefore shouldn’t be compared on headline price alone.

What does this mean for energy buyers?

Rather than comparing a CPPA with a standard electricity contract on price alone, you should consider what you want your business’ energy procurement strategy to achieve.

View a CPPA as a risk management tool; the right CPPA can offer greater budget certainty and clearer renewable energy traceability.

CPPAs in today’s energy market

The common theme amongst these myths is clear: the CPPA market is maturing.

CPPAs are no longer just for large corporates that can commit to lengthy contracts, but are instead becoming an option for a broader range of businesses, including the everyday buyer.

As the market has matured, energy buyers have more ways to structure agreements around their requirements, and a CPPA's role in an energy strategy has expanded too. They also now offer value beyond sustainability, acting as a risk-management tool that helps reduce exposure to market volatility.

Whether a CPPA’s right for your business depends on your energy requirements, risk appetite and your long-term sustainability objectives.

Get in touch to explore whether a CPPA could work for you.

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