Innovation in Corporate Renewable PPAs Webinar on 19th December, 3pm CET
Agenda for today Welcome and introduction to the RE-Source Platform 1 Bruce Douglas , Coordinator, RE-Source Platform Accelerating the adoption of corporate renewable Power Purchase Agreements 2 Lucy Hunt , Renewable Energy Associate, WBCSD Corporate PPAs – types, risks and common approaches 3 Andrew Hedges , Partner, Norton Rose Fulbright Followed by Q&A A lender’s view on Corporate PPAs 4 Marjella de Vries , Vice President Project Finance, Rabobank Followed by Q&A
Questions & Answers - Instructions Do you have any questions to the presenters? Please send them during the webinar through the questions function in the control panel. Search for the control panel. If it is not visible, 1 use the hide/show button to display it. Type in the question box and click on the 2 Send button. A selection of questions will be answered at the end of each presentation.
RE-Source Platform • Influence EU and national renewable energy and energy market legislation to advance corporate sourcing • Raise awareness and educate all stakeholders on the advantages of corporate sourcing renewable energy. • Provide business opportunities: connecting corporate renewable energy buyers and sellers “ Move from 100 buyers to 100,000” #100to100k
RE-Source Platform
Annual PPA volumes in Europe Annual volume (GW) 1.9 1.0 1.1 1.1 0.2 0.8 0.3 0.4 0.1 0.2 0.5 0.5 0.3 0.2 0.5 0.2 0.2 0.1 0.1 0.2 0.2 0.2 0.2 0.1 0.1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD Denmark United Kingdom Germany Netherlands Sweden Belgium Finland Italy Iceland Norway Ireland Official data partner:
RE-Source Declaration Over 100 organisations call on policy makers to: • Remove barriers • Provide clarity on Guarantees of Origin • Encourage cross-border transactions • Enable a wide variety of models #100to100k
Task Forces 1. Policy and lobbying: • National Energy and Climate Plans (NECPs) • Market Design • Implementation of RED II 2. Simplification and innovation of transactions 3. Cross border PPAs 4. Heating, cooling and transport
Title with 2 lines of text Image background Accelerating the adoption of corporate renewable Power x Purchase Agreements x Lucy Hunt, Renewable Energy Associate, WBCSD
Who we are WBCSD is a global, CEO-led organization of 200 forward thinking businesses working together to accelerate the transition to a sustainable world. World Business Council for Sustainable Development GLOBAL UNIQUE BUSINESSPLATFORM Our members enjoy access to a diverse business Our 200 members span across the community across sectors and a safe space to globe and all economic sectors. exchange ideas, know - how and information with Our mission is to accelerate We have 60+ Global Network partners who peers. Together, we develop business solutions to global challenges that no single company can engage with sustainable business at a the transition to a sustainable tackle alone. national level. world by making more sustainable business more successful. Our vision is to create a world where more than nine billion CEO-LED MARKET-DRIVEN people are all living well and within WBCSD is oriented towards collective We consider sustainable development as a strategic action and led by our member company the boundaries of our planet, by business opportunity. We strive to make more CEOs. member companies more competitive. 2050.
The REscale project Ambition Action Renewable energy is reliable and Leading companies representing the full increasingly competitive and we renewable supply chain are working believe that 3.5 TW of capacity can be together on solutions to accelerate the deployed before 2025. deployment of renewables beyond average growth and transition to a low- carbon electricity system.
REscale: Corporate Renewable PPA Forum The Forum increases understanding and use of corporate renewable PPAs – globally. The Forum’s activities: The Forum consists of: Lawyers, accounting Buyers incl. Global topical deep-dives: energy-intensive industry firms, investors Multi-technology PPAs, Cross-border PPAs Country deep-dives: India, Argentina, EU, Brazil Corporate Renewable PPA Forum Communication work Renewable Regulators and developers policy makers / utilities Read more: https://www.wbcsd.org/Programs/Climate-and-Energy/Energy/REscale/Corporate- renewable-power-purchase-agreements-PPAs
Innovation in PPA structures The objective of the guidance is to help power-purchasing companies overcome challenges and set up innovative, successful renewable PPAs . The publication is aimed at energy procurement and sustainability teams. Main PPA structures used today 1 2 Main features & risks in selected markets 3 Challenges & innovative market developments
Contact Lucy Hunt Associate, REscale hunt@wbcsd.org Mobile: +41 (0)79 5115 039 Main: +41 (0)22 839 3105
Corporate PPAs – types, risks and common approaches Andrew Hedges Andrew.hedges@nortonrosefulbright.com Norton Rose Fulbright LLP 19 December 2018
Basis for views… • Long history with corporate PPAs • Teams in US, Australia, UK, Netherlands, France, Germany, Italy involved in current work on corporate PPAs – Australian team just launched Guide to Corporate Power Purchase Agreements: Helping energy buyers to make the most of the growing renewable energy opportunity - with Energetics Australia in partnership with WWF’s Renewable Energy Buyers Forum • Innovative deals: – UK subsidy free corporate PPA using new physically sleeved approach – Synthetic PPA for subsidy free UK solar – Proxy revenue swaps in the US and Australia – Scandinavian baseload PPAs for subsidy free wind 17
Virtual / Synthetic vs Physically sleeved PPAs 1. Buyer agrees a PPA price (strike price) with the 1. Buyer agrees a PPA price with developer to developer and a price for renewable certificates; purchase the electricity it will generate plus 2. Developer delivers renewable energy to the grid renewable certificates; and is paid by a utility a variable spot price; 2. Buyer enters into a back-to-back PPA to sell the 3. Developer and buyer settle the difference electricity to the utility between the variable market price and the strike 3. Generator will transfer the electricity to the utility, price and the developer delivers renewable which will sleeve / wheel it through the grid to certificates to the buyer; buyer sites 4. Buyer continues to buy its power from the utility, which is now (subject to basis risk) hedged by the synthetic PPA 18
Common risks Development • Risk that generation facility is not constructed and commissioned on a timely basis or at all Performance • Risk that facility does not perform as expected • For eg: fails to achieve a minimum level of mechanical availability, meets its warranted power curve (wind) or performance ratio (solar) Volume • Intermittent technologies: risk re uncertainty of output of the facility over a period of time Shape / Profile • Risk that hour-to-hour output will be variable depending on relevant conditions such as wind or irradiation, even if the overall volume of an intermittent technology over a sufficient period of time can be forecast 19
Practice across different markets - US, Aust, UK, Netherlands, India Development • Across markets, common to see target milestone dates for completion. • Delay damages after a buffer period have been included on many deals (except UK). Australia relatively strong in approach to limited excuse events for breach of longstop dates. Performance • Minimum capacity availability requirements common for intermittent technologies • Breach can lead to shortfall payments and potentially termination Volume • Evidence from across markets that corporates are increasingly seeking minimum generation volumes as some corporate buyers look to pass volume variability risk back to developers Shape / Profile • Less clarity on common positions. For example, UK physically sleeved deals tended to leave to buyer to manage with its utility but this is changing 20
Volume Risk Innovation • Emergence of Proxy Revenue Swaps in US, now moving into Australia and (parts of) Europe • Simple example: • Contract – for-differences on annual revenue of a renewable energy project • Project receives fixed revenue ($/year, not $/MWh) and pays variable proxy revenue • Provides cash-flow and revenue certainty to the project by removing weather and price risk (for a cost) • Corporate PPA can provide mechanism for PRS provider to back off long term price risk 21
Volume Risk Innovation • Proxy Revenue Swaps not the only solution • Sellers are offering baseload PPA to corporate buyers for intermittent assets • For physical PPA, usually seller out-sources volume risk to trader to manage • Common topics for discussion are when baseload commitment adjusted (for example scope of force majeure or grid relief) • Others discussing multi-technology PPAs as alternative 22
Q&A
A lender’s view on Corporate PPAs Marjella de Vries - Rabobank
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