Powering your business with renewable CPPAs
6th January 2022
As more organisations set renewable and net zero targets, many are looking to generate their own low-carbon power.
But there are barriers to on-site generation. Not all organisations have the space, geography, or logistical capacity to implement renewable installations.
However, you can still decarbonise your power supply and support a renewable UK energy system through a corporate power purchasing agreement or CPPA.
While a power purchase agreement (PPA) is made between a power generator and a third party – often an energy supplier – a CPPA is a contract directly between an organisation and a power generator.
By agreeing to purchase power directly from a generator, an organisation (or group of organisations working in conjunction) can point to the precise source of their renewable energy.
Benefits of CPPAs
CPPAs offer a number of benefits for both the organisation buying power and the renewable generator:
Know where you power comes from
Building a relationship with a renewable generator, such as a wind or solar farm, allows organisations to point to a named source of renewable power.
This offers employees, customers, and investors a more tangible source, location, and even community from which an organisation draws power from.
More power, longer term, less risk
CPPAs are normally larger than PPAs and made between heavy energy consumers and large-scale renewable facilities, like hydro power stations rather than single wind turbines.
CPPAs are typically longer term, with 10 – 15-year contracts common. This reduces risk for both parties by locking prices over a longer term than liquid markets.
Social and environmental benefits
The ability to attribute your renewable power to a named generator brings brand value and can help your business towards its Environmental, Social, and Governance (ESG) goals.
Ultimately, by agreeing to a CPPA your organisation is supporting renewable energy in the UK, contributing to decarbonisation, and building towards a net zero future.
Benefits for the generator
CPPAs also have advantages for generators. The contracts offer all the benefits of a standard PPA, including the opportunity to diversify revenue streams if generation sits outside its main operations.
The longer-term nature of CPPAs means they can serve to unlock financing for larger scale renewable projects.
Different types of CPPAs
Every organisation has its own unique energy requirements, as a result every CPPA looks different.
There are several factors you need to consider before striking a deal with a generator including:
- Technology type
- The quantity of power required
- Location of the generator
- Potential break clauses
- The distribution of risk between the generator and your organisation
- How the CPPA can be incorporated with an energy supply contract
While there are a range of elements to consider in a contract, there are roughly three different types of CPPAs:
In the case of a direct CPPA, also known as a private wire, a generator operates or builds a new renewable asset near or on the power consumer’s site.
Electricity that’s produced goes directly to the buyer, bypassing the grid and avoiding energy transmission costs.
CPPAs don’t require a generator to be located on or even near the purchasing organisation’s site. With an indirect CPPA the renewable asset can be located anywhere and feed energy into the grid.
An energy supplier purchases that electricity and supplies the same amount of power to the consumer.
It means that while a customer’s power does not come directly from the generator, the supplier ensures that the renewable power is entering the electricity mix - decarbonising it further.
A synthetic or virtual CPPA is a much more complicated arrangement than a direct or indirect approach.
Like an indirect CPPA the generator supplies power to the grid, however in this case the electricity consumer does not receive power.
Instead, the generator and consumer agree on a pricing mechanism for ongoing ‘swap’ transactions based on the difference between a contractually agreed fixed priced of power and the variable spot market price.
How Drax can help
CPPAs can be complex contracts to set up. As a licensed renewable energy supplier, Drax can facilitate the registration, balancing, and settlement of the contracts.
Drax can also provide a ‘sleeving’ contract to help manage the electricity and money transfer on behalf of your organisation.
Or, if you’re looking for a more short-term CPPA, we can help there too, thanks to our own pumped storage hydro assets.
Get in touch to find out more about how Drax can help you set up a CPPA.