More and more companies are turning to corporate PPAs as a way to power their business sustainably and manage their long-term energy costs. Using demand flexibility to help align patterns of supply and demand can boost the benefits all round, as Open Energi’s Commercial Analyst, Dago Cedillos, explains.
The rise of corporate PPAs
The increasing cost competitiveness of renewables and the desire from many businesses to strengthen their sustainability credentials has led to the rise in popularity of the corporate PPA. Through a corporate Power Purchase Agreement (PPA), a company agrees to purchase the energy produced by a renewable project(s). This helps businesses to meet their sustainability goals whilst enabling them to hedge against future energy prices and even bring down the cost of their current energy bill.
Renewable developers have turned to corporate PPAs as a means to enable the delivery of their pipelines. With the removal of subsidies such as the Feed-in Tariffs (FiTs) here in the UK, PPAs can help developers finance and develop projects by securing long-term energy sale contracts which guarantee revenue for a substantial part of the project lifetime.
How does a corporate PPA work?
A corporate PPA is a contract between a renewable power producer and a corporate, agreeing to supply a specified volume of electricity at an agreed price. It is usually structured to last for 10 years or more, considerably longer than an energy supply tariff which tend to be for one to three years.
There’s no need for the corporate and the renewable project to be located near one another – they could be next door to each other or located on opposite sides of the country.
Of course a company’s demand will not always match a project’s generation. To manage this disparity companies have to go through a licensed supplier who will trade and settle in the market the surplus energy they do not use and/or the additional energy they may require, guaranteeing power delivery and assuming responsibility for issuing the corporate’s electricity. Suppliers take a fee or a premium for administration and taking the risk of balancing the residual of the renewable generation and the company’s electricity demand.
Aligning supply and demand
For example: let’s say a factory with demand profile X (blue line) agrees a PPA with a small solar farm with generation profile Y (grey line). The factory effectively consumes energy generated by the solar farm represented by shaded area A. The area B represents the additional energy that must be bought by the supplier to meet the factory’s demand, whilst the area C represents the surplus renewable energy that is sold to another party as the site’s demand has already been met.
The cost of this residual balancing will be affected by market dynamics and the premium charged by the supplier for managing this process.
The overall business benefit of a PPA will be determined by a number of factors, including the demand profile of the site, generation profile of the asset, market prices and the structure of the agreement with the supplier. But the more responsive a corporate’s demand can be to these factors, the better positioned they will be to maximise the benefits of a PPA.
Cutting costs with demand flexibility
This is where demand side response (DSR) and energy storage come in; shifting demand to more closely match the project’s renewable generation profile could maximise the effective consumption of this energy real-time and result in lower residual balancing. This would mean having to buy less energy during the shortage periods, which might be more expensive than that offered by the PPA, and selling back less energy during the surplus periods. Additionally, it could help decrease the imbalance risk of the supplier and make the case for a lower fee or premium.
It could also present arbitrage opportunities for the business. By shifting consumption away from peak times to cheaper periods, surplus energy from the PPA can be sold on at a high rate, while avoiding punishing network and capacity market charges which occur at the same time. Flexibility could even be used to respond to instantaneous market opportunities, such as high system prices occurring with mismatch in supply and demand, much in the way the trading team of a supplier would do today with large generators.
The value of this balancing achieved through flexibility with storage and DSR will vary across hours, days and seasons according to changing market conditions and patterns of supply and demand. What’s needed is technology that can evaluate these parameters in real-time, and optimise a business’ demand accordingly. This is where Open Energi comes in. We’re using our advanced technology, data-driven insight and experience of invisibly managing demand flexibility to help corporates make the most of their PPA.
Our solutions not only help to balance the grid, but can also balance demand real-time against PPA generation. This means businesses can make better use of cheap, renewable energy when it’s there, lower costs for suppliers, and ultimately bring their own energy bills down.
Dago Cedillos is a Commercial Analyst at Open Energi, where he focuses on innovative methods and business models to enable a more flexible energy system. Prior to Open Energi, Dago was part of a clean-tech startup working on a novel carbon-negative electricity generation technology. Dago has an MSc in Sustainable Energy Futures from Imperial College London, and has published a paper on investment strategies for decarbonisation and decentralized energy systems.