Irish electricity sector likely to see surge in use of CPPAs

John Scanlon of Pinsent Masons said that in recent years, large energy users across Europe have increasingly begun purchasing renewable electricity directly from generators using CPPAs. “In 2022, we have seen a continuation of that trend and we expect to see a significant increase in the use of CPPAs in the Irish electricity sector over the coming years. CPPAs make commercial sense for both the generator and the buyer and form part of the government’s strategy for 80% of the country’s electricity to be from renewable sources by 2030,” he said.

Last week, Pinsent Masons disclosed that it had advised AIB on a CPPA with NTR, an Irish renewable energy company which invests in and manages infrastructure assets. The deal will see AIB buy energy from two new solar farms in Co. Wexford that will provide around 80% of the bank’s energy requirements. Scanlon said the “breakthrough agreement” was an “important milestone for the Irish electricity sector,” which would lay the foundation for similar deals in future.

Most existing power purchase agreements benefit from Irish government support under the Renewable Electricity Support scheme (RESS) or the Renewable Energy Feed-in Tariff (REFIT) schemes. While RESS offers something similar to a contract for difference arrangement, its predecessor REFIT offers more certainty to renewable electricity generators, providing a minimum price for each unit of electricity exported to the grid over a 15-year period.

In a CPPA, however, a generator sells directly to a corporate buyer – outside of the RESS or REFIT schemes - giving a buyer the ability to lock in a fixed price for green electricity for the long-term duration of the contract. Buyers can also acquire certificates that the electricity is generated from renewable sources (GOOs). CPPAs are attractive for generators as they offer an alternative route to market outside of the existing government RESS scheme.

Scanlon said: “CPPAs provide the flexibility for parties to build in commercial provisions which are not currently available under the RESS support scheme. This allows them to determine how the contract price is calculated and to periodically adjust prices to reflect increases in inflation. This is of particular significance in the current inflationary environment. CPPAs also benefit society because they facilitate the construction of renewable projects which do not rely upon government support.”

Scanlon said Ireland was also seeing a surge in ‘virtual’ power purchase agreements (VPPAs). Unlike physical PPAs, where electricity is physically delivered to a customer from a nearby power plant for a fixed price per unit, VPPAs remove the need for proximity and are made possible due to the de-regulated nature of the Irish wholesale electricity market.

“VPPAs are of particular interest to corporates that have multiple locations or are not based in areas where large-scale renewables projects are being built. While this structure is not uncommon in European and American electricity markets, this is a relatively new concept in the Irish electricity sector,” Scanlon said.

He added that aggregated PPAs, under which a group of companies collaborate and pool their power usage to purchase green electricity directly from a generator, would become more prevalent as the Irish PPA market matures.