Understanding Corporate Power Purchase Agreements (CPPAs)

Businesses are focusing more and more on their sustainability goals, using a CPPA will be a big step in achieving these targets. We have written this blog to help your organisation understand CPPA’s and which is best suited for you.

What is a CPPA?
A Corporate Power Purchase (CPPA) Agreement is a long-term contract whereby an organisation agrees to buy all or part of their energy requirement directly from a generator, which can be a solar or wind farm developer.

The CPPA contract defines the key terms under which the agreement operates, covering off agreed volumes, contract duration and price. A CPPA allows the customer to receive stable and often low-cost electricity with no upfront cost.

Types of CPPA’s
There are several types of CPPA; however, these can be split into three categories:

  • Direct PPA:Sometimes also referred to as a Physical or Sleeved PPA, this is where the corporate buyer (the company purchasing the CPPA) enters into a long-term agreement (typically 7-15 years) with a renewable generator. Typically, the CPPA will clearly define the amount of power sold and the agreed £/MWh price. In this contract structure, parallel agreements are in place with a supplier, who will ensure that the amount of energy supplied balances with demand.
  • Virtual PPA (VPPA): VPPAs (or Synthetic PPAs) are less common in the UK and involve price guarantee arrangements between the generator and the corporate buyer, which is the business/individual that is purchasing the energy. VPPAs are considered an ‘indirect’ form of PPA, because no energy is physically traded between the generator and the buyer and is better understood as a financial instrument.
  • Private Wire: A private wire is similar to a Direct PPA; however, the energy is sold directly from generation to the corporate buyer. In this arrangement, the generation asset will be located close to the corporate buyer facilities and can offer significant financial benefits due to savings on network costs.

 

Benefits of using CPPA’s
There are many benefits of CPPA’s, including…

  • Price Stability: securing a long-term fixed price may be preferential for financial planning.
  • Corporate Social Responsibility: Can improve brand awareness and loyalty by supporting environmental sustainability projects.
  • Off-balance sheet: PPA’s are designed to be an off-balance sheet financing solution, with regular payments treated as an operating expense similar to a standard utility bill.
  • Cost-saving: The opportunity to negotiate lower rates if purchasing a significant amount of power.

Can my business use a CPPA?
Each CPPA-type can be limited by credit strength, volume, and operational restrictions. However, if your business is keen to get ahead on its sustainability goals, then this is something you should be considering!

At Beond, we can look at your energy consumption and business ambitions to determine which CPPA solution is most suitable for your goals to ensure you receive all the benefits your business needs.

Our team of experts are waiting to support your business. To find out more, contact our team at Beond on 0208 634 7533 or email us at info@beondgroup.com.