Why more businesses are turning to CPPAs to manage energy risk

From sustainability driver to risk management tool

Historically, organisations entered CPPAs to secure electricity from a named renewable source and demonstrate progress against environmental, social and governance (ESG) commitments. At a time when renewable energy was less readily available, this provided both reputational and operational benefits.

Today, while sustainability remains important, the primary driver has evolved.

CPPAs now offer organisations a way to secure long-term price certainty. By agreeing a fixed price for a portion of their electricity consumption over an extended period, businesses can reduce their exposure to fluctuations in wholesale markets and build more resilient procurement strategies.

This is particularly relevant for energy-intensive sectors, where electricity represents a significant proportion of operating costs.

Structuring long-term certainty into supply contracts

CPPAs are not typically designed to replace existing supply arrangements. Instead, they are used to complement them.

By securing a proportion of demand through a long-term agreement, organisations can introduce a level of predictability into their energy costs while retaining flexibility elsewhere in their portfolio. This approach allows businesses to balance risk management with operational requirements.

However, CPPAs can be complex to structure and implement. They require coordination between generators, suppliers and customers, as well as alignment with existing contractual arrangements.

Sleeving plays an important role in addressing this complexity. By integrating power purchased from a third-party generator into a customer’s supply contract, suppliers can manage the operational and administrative requirements on behalf of the customer. This makes CPPA structures more accessible and easier to implement in practice.

Increasing adoption across sectors

Recent agreements, facilitated by our sleeving capabilities, illustrate how CPPAs are being adopted across a range of industries.

Thames Water entered into a five-year agreement covering 132 gigawatt hours (GWh) of electricity annually, supporting a significant proportion of its operational demand. More recently, Global Switch has secured two agreements that now cover over 70% of its total UK electricity demand, of which 100% is renewables-backed.

While these organisations operate in different sectors, the rationale behind these agreements is consistent. Each is using a CPPA to introduce long-term price certainty, reduce exposure to market volatility and to maintain low carbon operations.

Gavin Greer, Group Procurement Director at Global Switch, said:

“At Global Switch, we have both a responsibility and a unique opportunity to facilitate a sustainable, technology-enabled world."

“Partnering with Drax on our Corporate Power Purchase Agreements has enabled us to secure reliable, renewable energy at predictable costs. This gives us the confidence and resilience to navigate energy market volatility and focus on delivering high-performance."

Accessibility and market development

CPPAs have historically been constrained by limited availability and structural complexity. Factors such as grid capacity, generator preference for government-backed schemes, and bespoke contract terms have all influenced adoption.

However, the market is evolving.

Greater standardisation of contract structures, alongside improved routes to market for both generators and consumers, is increasing accessibility. At the same time, changes to government support mechanisms may lead to a greater role for CPPAs over the coming years.

These developments are expected to support continued growth in CPPA adoption across a broader range of organisations.

A more strategic approach to energy procurement

Energy procurement is becoming increasingly aligned with wider commercial strategy. Organisations are placing greater emphasis on cost predictability, risk management and long-term planning.

CPPAs provide a mechanism to support these objectives. By securing a fixed price for a portion of electricity demand, businesses can improve budget certainty while continuing to support the transition to a lower-carbon energy system.

While CPPAs are not suitable for every organisation or every scenario, they are becoming an increasingly important consideration for businesses seeking to manage energy risk in a volatile market.

Disclaimer

We’ve used all reasonable efforts to ensure that the content in this article is accurate, current, and complete at the date of publication. However, we make no express or implied representations or warranties regarding its accuracy, currency or completeness. We cannot accept any responsibility (to the extent permitted by law) for any loss arising directly or indirectly from the use of any content in this article, or any action taken in relying upon it.