The French Energy Regulatory Commission (CRE) – Commission de régulation de l’énergie – has advocated for the increased development of renewable energies without public aid, emphasising the importance of corporate power purchase agreements (corporate PPAs).
The outlook appears promising for the future of corporate PPAs in France following several robust indicators being sent to the market during the latter stages of 2023. Corporate PPAs establish direct or indirect relationships between producers of renewable energy and companies acting as buyers and ultimate consumers of decarbonised energy. There is no physical connection, meaning the power used still comes from the grid, but the purchasing company is contracting with a named generator, so the energy is coming from a specific source.
A guarantee fund for renewable electricity supply contracts, operated by Bpifrance (the French public investment bank), was launched in September last year. The scheme demonstrates the French government’s desire to encourage the use of corporate PPAs with aims to make the conclusion of such corporate PPAs more accessible to industrials buyers, by offering producers a solution to mitigate financial risks they could bear when entering into such contract.
The contract between the energy producers and companies purchasing the renewable energy is based on the financial flows that will be paid by the buyer in return for the sale of electricity and associated guarantees, notably guarantees of origin. A default by the buyer is therefore likely to compromise the repayment of debt and the producer’s return on investment. A potential issue arises here as it can be difficult to assess the buyer’s creditworthiness for a period of more than five years, with corporate PPAs normally a contract lasting for long periods of time.
In this situation, the producers often ask for a guarantee from the buyers. For example, the risk may be covered by implementing first-demand bank guarantees – a guarantee delivered by a reputable bank to cover the buyer’s financial obligation within the contract. Alternatively, a parent company guarantee may be requested based on the financial strength of the purchasing company’s group.
Bpifrance's Renewable Electricity Guarantee (GER) emerges as a valuable solution, offering an alternative to mitigate potential income losses for renewable electricity producers in case of default by the industrial purchaser. This guarantee covers up to 80% of the incurred loss, aligning with the term of the corporate PPA and spanning a duration of 10 to 25 years.
This interesting instrument has already been employed in the context of a corporate PPA signed by Arkolia with Bonduelle in October 2023. Unfortunately, this option is not accessible to everyone, as the GER is currently only available to industrial companies headquartered in France with extractive or manufacturing activities, and to photovoltaic or onshore wind power plants in mainland France that meet the minimum guaranteed electricity volume requirement of 10 GWh per year.
Trends of increasing demand for corporate PPAs in France
One notable trend is the escalating interest from numerous companies looking to engage in corporate PPAs. For many firms, corporate PPAs prove to be a commendable solution when facing the dual challenge of efficiently managing their electricity supply while actively contributing to sustainable development.
Electricity stands out as a significant cost factor for manufacturers, with fluctuations in wholesale market prices posing a considerable threat to industrial competitiveness. Contracting a corporate PPA, typically at a fixed or predictable price, emerges as a strategic approach to stabilise electricity supply costs and provide partial protection against market price volatility.
Companies are increasingly endorsing principles of corporate responsibility, not only to support the development of new renewable production facilities, but also to justify consuming energy from renewable sources. This commitment is reinforced by acquiring guarantees of origin equivalent to the electricity volume obtained by the corporate PPA. Another promising indicator is that companies having concluded corporate PPAs in the past are choosing to renew the experience by entering into new corporate PPAs to further boost the share of renewable energy in their consumption.
Adding to this optimistic landscape, Lhyfe, a pioneer in green and renewable hydrogen production, entered into two corporate PPAs in the summer of 2023: one with VSB Energies Nouvelles for the 13.2 MW Buléon wind farm, with a 16-year duration, and one with Kallista Energy for a wind farm with a total capacity of 15 MW post-repowering, with a 15-year duration. This illustrates the attractiveness of corporate PPAs for producers willing to forego the state support mechanism to enter into a contract at a more attractive tariff. It also highlights the increasing number of potential buyers of green electricity.
The signing of corporate PPAs by hydrogen producers poses many challenges, however. For example, the management of the relationship between the production of renewable energy and the production of green or low-carbon hydrogen. In spite of this, given France’s ambitions to develop “renewable” hydrogen, it is reasonable to assume that the number of corporate PPAs signed by hydrogen producers wishing to meet the European Commission’s Renewable Fuels of Non-Biological Origin criteria of what can be considered renewable fuels, including energy infrastructure investments and state aid rules, will increase.
Understanding third-party dynamics in corporate PPAs
It is important to remember that corporate PPAs do not exist or function in a vacuum. It is not only the energy producer and company purchasing this energy involved. Instead, various third parties can significantly influence their content. The specific roles and responsibilities of each party involved are usually extensively covered in the corporate PPA.
The agreements involve a balance responsible entity that manages forecasting and balancing services for both the producer and the purchasing company. Energy produced by through wind or solar panels cannot be easily forecast with full accuracy, but these parties can calculate any imbalances in energy production to allow for estimated numbers.
Banks and financial institutions are often also involved, for example, leading on the financing or refinancing of the agreements. These parties give careful consideration to things such as the duration of the corporate PPA, the agreed price, the creditworthiness of the buyer and the producer’s commitments timeline, as well as any termination clauses or termination indemnity included in the agreement.
With the benefit of hindsight over the last years, market participants now have a clearer understanding of the expectations from each stakeholder, providing reassurance to the cautious. Nevertheless, corporate PPAs remain complex contracts, especially for the uninitiated. Adequate guidance is essential for both producers and buyers to effectively navigate and meet the needs and constraints of all parties involved.
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