Energy consumer, meet CPPA
CPPAs offer energy consumers financial, environmental, reputational and risk-reduction benefits.
They help meaningfully reduce the emissions associated with electricity consumption. They also allow consumers to lock in stable prices and, accordingly, mitigate the threat of rising wholesale prices to allow for more effective budgeting.
But what are CPPAs, and how do they promote these benefits?
What’s a CPPA?
A CPPA’s a Corporate Power Purchase Agreement. It’s a contract that connects the power an organisation consumes to a specific renewable generator. It can relate to an existing or a new renewable generation asset.
We’ve already suggested that CPPAs can help consumers – there’s more detail about how below. But CPPAs also help generators too.
The price certainty consumers benefit from also helps generators secure long-term revenue and contributes to them getting project financing. This can be particularly important if government subsidies for renewable energy generation reduce.
CPPAs have encouraged further renewable generation investment and in doing so, have been a crucial component in supporting the UKs transition to a greener future. This investment helps decarbonise the Grid itself – giving National Grid the chance to raise the percentage of renewables it uses to balance supply and demand.
Jargon-busting
If you’re new to CPPAs, you’ll find that some terms and abbreviations commonly appear in related literature and articles. Here’s a quick summary of the most popular ones:
- Balancing – see ‘Balancing’ section
- Baseload – a standard, long-range requirement of energy volume
- Consumer – the organisation using/consuming energy
- Generator – the (renewable) energy producer
- Intermittency – how irregular the generation of energy is (from renewable sources)
- Shaping – flattening peaks and troughs of energy generation into a consistent baseload for the consumer to draw from
- Supplier – the energy market organisation arranging the contract and helping balance supply with demand
Consumer benefits
Price stability
CPPAs are usually long-term contracts of 5-20 years. They therefore help consumers manage power price risk over an extended period, reducing exposure to volatile market prices and helping energy spend to be more predictable.
Emissions reduction
CPPAs deal exclusively with renewable energy. Using guaranteed renewable source electricity – supplied with relevant Renewable Guarantee of Original (REGO) certification – reduces consumers’ reportable Scope 2 emissions.
Diversification of supply
Agreeing multiple CPPAs across different technologies enables consumers to spread the source of renewable electricity supply. Some technologies may be more desirable and expensive. Others may be more intermittent. Diversifying investment reduces reliance on one technology and can help ‘plug’ intermittency gaps – as well as providing more opportunities for positive PR stories.
Hedging
In the same way that consumers can diversify their investment between technologies, they can diversify their supply between CPPAs and reduce their exposure the wholesale market.
Renewable certification
CPPAs come with REGOs for each relevant MWh of renewable energy. REGOs show a consumer’s commitment to sustainability and may attract investors or customers.
Corporate social responsibility advantages
Being able to state exactly where purchased power comes from offers reputational benefits. It’s possible for organisations to enhance these benefits by choosing renewable technologies that align with their location, sector or business strategy.
Balancing
It’s not always possible for generation volumes to match demand levels. This can be simply because the amount the sun shines and the wind blows is unpredictable, and this can result in a shortfall or a surplus of available supply.
‘Balancing’ is the act of sourcing the balance of the agreed power requirement. Usually, the consumer’s energy supplier manages balancing on the consumer’s behalf, and charges for the service.
Balancing costs consist of three elements: shaping, volume variance and imbalance – and they differ by CPPA type.
More information on CPPAs
Our guide to Corporate Power Purchase Agreements features more information on CPPA types, their challenges and what to consider when choosing one. It also looks at the future of CPPAs and provides a comprehensive glossary of CPPA terms.
You can download it by clicking the button below.
Download the CPPA GuideDisclaimer
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.
