The BiU Guide:

Corporate Power Purchase Agreements (CPPAs)

Introduction to CPPAs

Corporate power purchase agreements (CPPAs) have become a popular choice for organisations looking to transition to a green energy supply and meet climate change targets.

BT, Nationwide, McDonalds, Tesco, Sainsbury’s and HSBC are just some of the big names who have signed up to CPPAs, but there are options for organisations of all sizes. In this guide, we explain what CPPAs are, and how they could benefit your business.

What is a CPPA?

A corporate power purchase agreement, or CPPA, is a long-term contract under which a business agrees to buy some or all of its electricity directly from a renewable energy generator, such as a solar or wind farm (which is connected to the grid). This differs from the traditional approach of simply buying electricity from licensed electricity suppliers.

As the UK moves towards decarbonisation, there is a constant need to build the next generation of renewable assets to meet demand. CPPAs help to finance renewable energy projects, as they give generators a guaranteed buyer and revenue stream for the energy they produce.

What are the business benefits of CPPAs?

There are many reasons why organisations are turning to CPPAs:

  • Budget certainty: CPPAs typically cover a period of between five and 20 years. The price per unit can be fixed throughout the full contract, helping to protect businesses against a potentially volatile market.
  • Price discount: Most CPPAs are priced at a discount to current market projections in order to secure funding.
  • Reaching net zero goals: Climate change has been pushed to the top of the business agenda in recent years. Signing a CPPA is one of the quickest, most straightforward ways for an organisation to meet sustainability targets. Renewable Electricity Guarantee of Origin certificates (REGOS) enable organisations to report zero carbon emissions for that electricity.
  • Corporate social responsibility: By purchasing renewable energy from a specific generator, businesses can demonstrate a long-term commitment to supporting the growth of renewable energy projects.
  • Transparency and accountability: CPPAs allow organisations to identify exactly where their power is generated and show that it is from renewable sources.
  • Portability: CPPAs do not stop you from changing energy suppliers, as you can take it with you if you move your supply contract.

Different CPPA models

There are broadly three different types of CPPA:

Synthetic/Virtual CPPA

A generator and corporate consumer agree on a pricing mechanism and periodically reconcile against it. This acts as a financial hedge as no energy is being supplied by the generator to the corporate.

Direct CPPA/Private Wire

A generator contracts directly with a corporate consumer and builds a renewable asset on or near the consumer’s site. The energy produced goes directly to the consumer and bypasses the grid, which also helps to reduce exposure to non-commodity costs.

Indirect CPPA

A generator contracts with a corporate customer but the renewable asset is not located on or near the consumer’s site. Instead the energy produced goes onto the grid and a tripartite agreement allows the power to flow from the generator to the consumer via the consumer’s licensed supplier.

What does a typical CPPA look like?

Typical CPPAs require:

  • A minimum price, or fixed price commitment.
  • An agreement term between five and 20 years.
  • Registration, balancing and settlement facilitated by a licensed supplier.
  • Energy typically ‘sleeved’ between the generator and consumer, via the licensed supplier.

Which type of CPPA should I choose?

There’s no “one size fits all” in the world of CPPAs. The type best for your organisation depends on a host of factors, including your organisation’s size, financial ambitions, long-term sustainability strategy and approach to risk.

Other factors to consider include:

  • Duration – how long do you want the CPPA to last?
  • Portability – is this essential?
  • Technology – do you have a preferred source or location?
  • Volume – do you want to buy the entire amount of energy from one project?
  • Any break clauses required?
  • What’s the distribution of risk between the generator and your organisation?
  • Can your CPPA partner deliver an end-to-end service?
  • What is the impact when a CPPA is incorporated with a supply contract?
Greenwashing - Renewable Energy

Getting started: choosing the right CPPA for you

The process of choosing a CPPA partner is complex – but it can be broken down into 5 steps:

Step 1: Invest time in understanding the needs and motivations of your business.
Step 2: Set out your key considerations to determine the CPPA structure that works for you.
Step 3: Source and approach CPPA partners that match your requirements.
Step 4: Undertake negotiations or an open tender process.
Step 5: Secure a CPPA partner, and agree terms.

The wide range of CPPA options available means it makes sense to talk to the experts about your requirements first.

BiU delivers an end-to-end CPPA service, to help you at every stage of the process. If you’d like to talk to us about whether a CPPA would be a good fit for your organisation, we’d be happy to help.

Jargon buster: CPPAs

Some of the phrases and acronyms you’ll come across when talking about CPPAs…

CPPA

Corporate power purchase agreement.

REGO

The Renewable Electricity Guarantee of Origin scheme. A REGO certificate proves to the customer that the energy supplied came from renewable sources.

Sleeving

The act of transferring energy from one counterparty to another.

Offtaker

The energy buyer (e.g. the corporate customer purchasing the energy).

Asset owner

The energy seller (e.g. the renewable energy generator).

AD

Anaerobic digestion, where organic waste is broken down to produce energy. A popular CPPA option, along with solar and wind.

CHP

Combined Heat and Power. Provides heat and electricity from a single source. Another CPPA option.

Top 3 FAQS: CPPAs

1.  What is the typical CPPA duration?

Whilst CPPAs vary in duration, the typical contract length is 10 years as most renewable generators need a fairly long-term agreement in order to secure finance for the project.

2. What is the best CPPA structure?

As set out in this guide, there are 3 main CPPA structures and whilst there is no “one size fits all”, most UK corporates prefer to adopt either a Direct/Private Wire or Indirect approach as they provide a more transparent approach to sourcing renewable energy, rather than just a financial hedge under a Synthetic/Virtual CPPA.

3. Are CPPAs a cost effective way to purchase green energy?

Yes – increasingly, CPPAs are being adopted by corporates as part of a diversified risk management strategy, with pricing mechanisms such as discounted fixed prices providing budget certainty.

Next steps

If you need further help with CPPAs or want to discuss your options further, simply complete the form below and the team will be in touch. Alternatively, you can email us anytime at hello@biu.com or call 01253 789 816.





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