Energy prices have just hit the headlines again, this time with the grim news that soaring costs have pushed inflation to a 40-year high. Many UK businesses have been struggling since the autumn because of the drastic change in the energy-buying landscape. Those suppliers who have survived the changes are operating on much thinner margins than in the past, which means that businesses approaching contract renewal can no longer expect to be offered similar terms to before. Changing supplier terms, narrowing options and unprecedented price volatility make it very difficult to budget with any certainty.
Many businesses are responding to this uncertainty by moving away from traditional supplier contracts and instead choosing a corporate power purchase agreement (CPPA). With a CPPA, the business signs a contract agreeing to buy electricity directly from a renewable energy generator. The contract usually covers a period of between 10 and 15 years, and it is possible to fix the price per unit either for the entire contract period or for part of it. This gives businesses much-needed certainty on pricing.
Solving multiple problems at once
The second big attraction for squeezed UK businesses is the lower per-unit cost for electricity. Generators tend to offer a below-market rate to their CPPA customers, because the predictable income stream helps them secure funding for their respective generation projects.
Although it may not seem as urgent as keeping the lights on, the environment is another powerful driver for businesses to switch to renewable PPAs. Over half of FTSE100 companies are committed to net zero by 2050, and voluntary carbon reduction schemes such as the Science-Based Targets initiative have seen a huge increase in corporate sign-ups in recent years. A renewable CPPA is a way for businesses to show that they are serious about sustainability. Having a direct relationship with a specific generator is a straightforward way to prove that your business supports renewable generation projects. And as investors grow increasingly hesitant about greenwashing, a directly traceable link to a generator gives them the transparency they need to make a decision.
A range of options
Our CPPA guide explains the main categories of CPPA and their benefits.
Most UK businesses opt for an indirect, or “sleeved” CPPA, with a flat fixed price for the contract duration or linked to CPI with a cap. This usually all works via a three-way agreement between the generator, the customer and a licensed electricity supplier.
Your own energy security strategy
We have known for decades that dependence on fossil fuel energy is pushing the world towards runaway climate change. Now there is a more immediate risk: vulnerability to global upheaval.
The UK government’s energy security strategy recognises that to protect ourselves from price and supply shocks, the country needs to reduce dependence on oil and gas. But the government’s planned investment in renewables is a long-term measure. UK businesses need to develop their own energy security strategies right now, to solve today’s problems. A renewable CPPA can be a dependable part of such a strategy, making the future more predictable and your business less vulnerable.
For more detail on CPPAs and what the first steps are, read our free CPPA guide.