Renewable power in the higher education sector
A recent deal has reportedly allowed universities to fix the price of their power for the next ten years, protecting them against fluctuations in a…
On 7 October 2019, twenty of the UK’s leading universities struck a £50m deal to buy renewable power directly from windfarms in the UK owned by Statkraft. The ground breaking deal is the first time in the UK that a consortium of buyers has clubbed together to buy renewable energy in such a manner. The Universities did this by entering what is known as a corporate power purchase agreement or “Corporate PPA”.
The deal has reportedly allowed the universities to fix the price of their power for the next ten years, protecting them against fluctuations in a volatile wholesale market and delivering budget certainty. It also enables the Universities to make significant progress in meeting their increasingly ambitious sustainability targets, which have become a strategic priority, given the current social and political climate.
What is a Corporate PPA?
A Corporate PPA is an agreement entered into between a generator and a corporate consumer for the sale of power generated by a renewable installation, without the need for the installation to be physically connected to the consumer’s site. This differs from the traditional model of buying power from a licensed electricity supplier where the licensed supplier is responsible for ensuring it has sufficient capacity to meet demand by contracting with individual generators on power markets.
While different structures exist, the key components of a Corporate PPA are:
- a direct contract between a generator and a corporate consumer for the sale of renewable power, without the need to be physically connected;
- long term – usually 10 – 15 years;
- fixed/floor/ceiling pricing structures to provide price certainty;
- acts as hedge against volatile energy prices; and
- the possibility for buyers to club together to aggregate demand.
What are the benefits?
There has been significant growth in the use of Corporate PPAs in recent years due to the benefits that they can provide to both corporate consumers and generators alike. In the UK, one of the largest deals was struck between the brewery business AB InBev and Lightsource BP to develop 100MW of solar power to help power their operations. Other major corporates in the UK participating in the Corporate PPA market include Shell, BY, M&S, EE, Unilever, Mars and Sainsbury’s. Globally, 13.4 GW of renewable energy was purchased under Corporate PPAs in 2018.
|Fixed/floor/ceiling pricing structures provide budget certainty||Fixed/floor/ceiling pricing structures provide a steady revenue stream|
|Allow corporates to reach their sustainability targets||Easier access to funding as lenders are more attracted to steady long term revenue streams|
|Enhances “green credentials” and provides reputational benefits||Corporate PPAs represent a new route to market and could unlock the development of subsidy free renewables|
|Clubbing together allows corporate consumers to share risk.||Enhances “green credentials” and provides reputational benefits|
How are they structured?
A number of different structures exist but the leading model for implementing Corporate PPAs in the UK is what is known as the “sleeved” PPA. Under this model, a licensed supplier performing its regulatory functions “sleeves” the renewable power generated across the grid and physically supplies to it to the corporate, together with any balancing power as may be required.
The key features of this model include:
- it is a tri-partite arrangement involving two PPAs. A licensed supplier needs to be party to the deal as it is licensed to put electricity on to the grid and physically supply it to the corporate;
- certificates of guaranteed origin (GOs) can be transferred directly from the generator to the corporate consumer under PPA1;
- a corporate’s existing electricity supply agreements may need to be amended to accommodate the new “sleeving” arrangements; and
- subject to maintaining a minimum commitment, it may be possible to create a framework structure to aggregate demand and to add/remove sites from the scope of the corporate PPA.
How can we help?
Our national energy and utilities team has extensive experience advising on Corporate PPAs, having developed and negotiated innovative contract and business PPA structures. We combine legal expertise with deep industry knowledge in order to provide you with comprehensive legal advice across the entire lifecycle of a Corporate PPA including:
- strategic structuring advice and advising on optimum delivery models;
- assisting with procurement processes for the selection of an ESCO or partner for a behind the meter project or Corporate PPA;
- advise on appropriate funding arrangements;
- prepare draft / template documentation for Corporate PPA projects;
- advise on all relevant contractual arrangements and legal issues including the appropriate allocation of risk;
- leading negotiations with project counterparties; and
- providing focused regulatory advice.
If this alert raises any issues for your organisation, please speak to your usual contact in the Weightmans commercial team or contact Levent Gurdenli at firstname.lastname@example.org. Alternatively, please contact Martin Vincent in the Weightmans education team at email@example.com.