Unlocking value and realising opportunity through corporate PPAs

Published 09 Aug 2019

By Finnian Murphy, Project Manager, Business Renewables Centre Australia

Share this article

It is by no means controversial to suggest that corporate buyers can benefit from entering into a renewable Power Purchase Agreement.

Jon Dee (RE100), a frequent collaborating partner with the Business Renewables Centre Australia (BRC-A), delivered an inspiring address on 30th July to the stakeholders gathered at the BRC-A-hosted breakfast discussion on recent corporate renewable Power Purchase Agreements (cPPA) signings at the Clean Energy Council (CEC) Australian Clean Energy Summit (ACES). He emphasised the increased traction in the Australian and international corporate communities committing to 100% renewable energy (and other innovative sustainability strategies), including major corporate pledges from CommBank to Atlassian.

PPAs enable corporations to hedge against wholesale electricity market volatility: during the discussion, Ben Waters (Presync) remarked, ‘doing nothing is high-risk; business-as-usual electricity procurement has been extremely high-risk… everyone assumes that sustainability comes at a premium… I’m here to tell you it’s cheaper and let’s talk about how to spend the savings on an additional carbon benefit.’

In addition to financial savings, there’s a growing market and moral imperative to build sustainability into everyday corporate operations. Emma Bombonato (Sydney Opera House) said that the Opera House team aspires to be ‘as bold and inspiring as the Sydney Opera House itself’, a motto that motivated them to explore cPPAs out of responsibility to the environment, extending beyond the risk hedge against wholesale electricity price volatility.

Likewise, Simon Currie (Energy Estate) championed that corporates with ‘a lot of buying power’ ought to exercise their responsibility and exploit it to realise environmental and community benefits; ‘there are so many other things you can achieve than just saying ‘Oh look, I managed to save on my energy bill!’’ Simon’s approach to adding environmental value in the Bomen Solar Farm included avoiding the use of land harbouring native habitat or prime agricultural pasture, and ‘upcycling’ the chosen area by growing particular grasses that ‘enhance the experience for sheep grazing between the panels’ and encourage ‘bee pollination and biodiversity.’

Stephen Au (Flow Power) says emerging deals anchor on the discovery of additional environmental and social benefits, since they send a signal to the corporate’s supply chain or the larger community; it’s becoming a key driver for customers.

‘The challenge is bundling lots of SDGs [Sustainable Development Goals] into the one renewable energy project!’ advised Simon. ‘That’s what leadership looks like now in the sector. The PPA is a really elegant procurement tool, don’t undersell it; it has the ability to tackle multiple objectives at once.’

Nevertheless, there persist a number of barriers to entering into a corporate Power Purchasing Agreement (cPPA). From the discussions at yesterday’s breakfast, these barriers tended to cluster around several key themes, and opportunities for action:

1. Understanding what is involved

Michael Shelley (Woolworths) and Dan Brown (Ashurst) unpacked Woolworth’s sustainability strategy, the cornerstones of which are an energy management centre, onsite photovoltaic generation, natural refrigerants and cPPAs.

Dan observed that cPPA interest has grown alongside the traditional retailer PPA, but acknowledged that it’s important to have a ‘true understanding of what it is that’s driving them on the sustainability journey’ because it’s a ‘very complex transaction that’s not very well understood by most corporates’.

Emma emphasised the need to socialise the concept with the CFO early and conduct market sounding to validate the business case and legitimise the option, a process which took several months.

2. Providing pathways for smaller corporate customers

Emma Bombonato (Sydney Opera House), Ben Waters (Presync) and Stephen Au (Flow Power) then discussed how innovative retail models have enabled smaller corporate customers to capture value from clean energy resources.

Ben exhaustively modelled potential price outcomes which helped the Opera House land on a sleeved, supply-linked cPPA contracting with both solar and wind projects through retailer Flow Power, an innovative arrangement which Ben says has been revolutionary in unlocking a single generator’s output for several unaffiliated corporates rather than forcing aggregation among smaller energy consumers (a complex but demonstrated process).

3. Demystifying the process and technical language

Michael admitted that translating energy market concepts into language accessible by the internal team was crucial, and revealed that a catalyst in the process was positive, attentive leadership in the company management.

Emma’s key takeaways from the process overlapped with Michael’s: socialise the issue early, demystify electricity industry metalanguage, and engage someone like Ben to assist in that process. Emma advised that reframing strategic and financial risks as opportunities can serve as drive to support the renewable energy sector.

4. Tailoring offerings to meet specific needs

Simon and Stephen advocate streamlining and standardising certain PPA processes while keeping customisable options open to suit different corporate segments. Co-operation between Energy Estate and Flow Power also allowed developer-side participation in an innovative cPPA wherein Flow Power’s on-selling of the generator’s output meant Energy Estate was free to effectively tailor the project’s capital structure given different available PPA terms and flexible capacity contracting. Otherwise, potential customers might risk exclusion – ‘the Sydney Opera House didn’t want a 10-year deal!’

Stephen elaborated on the proven viability and demand for flexible retail products, especially in sectors where electric loads are somewhat controllable like agriculture; ‘we see wholesale really as a conduit to accessing additional value. It takes time for customers to effectively get to the viewpoint to go away from traditional retailing processes and go onto wholesale and start accessing these value points [demand management initiatives, ARENA’s demand response program]’.

5. Understanding the co-benefits

Dan and Michael agreed that aside from the financial benefit of procuring competitively-priced renewables, the emerging symbiosis between clean energy developers and corporate buyers is now allowing, for example, Woolworths’ core business of selling ‘baked beans and bananas’ to contribute substantially to the clean energy transformation.

Emma also reiterated the need for a compelling business case, ensuring the proposition has commercial benefits but also a defining sustainability component (especially for a national icon with 10 million visits annually!).


Day 2: Bridging the gaps between developers and buyers of renewable energy

The BRC-A sessions during Day 2 (31st July) saw more insights emerge from a diverse range of experienced industry professionals. Open conversations with the audience, panel discussions and recent cPPA case studies revolved around several core principles:

1. The market demands depth of understanding

Dan Brown (Ashurst) cautioned renewable energy project developers against using the same slide deck for different corporate customers and said ‘exercising the usual muscle’ of communicating only electricity volume, price, project location and marginal loss factor (MLF) in a submission is simply insufficient. Instead, researching and assessing the sustainability goals and core commercial values of each prospective client to develop an intuitive understanding of what they seek works wonders in the engagement journey (a journey that ought to be ‘honoured’!).

Buyer experience regarding developer-side understanding contributed by Peter Dobney (Orora) and Hugh Butcher (Eastern Alliance for Greenhouse Action) highlighted the necessity of risk appetite being explored adequately on a per client basis. Lachlan Creswell (Macquarie Capital) reiterated this need to tailor the offering to every customer, especially in developing an understanding of what deal arrangement is most appropriate. He said this hinges on the fact that successful outcomes require commitment of time and support from senior stakeholders given cPPAs involve long timeframes, significant financial value and strategic implications as opposed to simpler, reversible procurement decisions.

2. Partnership patience is a prerequisite

The prevailing sentiments of Stephen Sasse (Nectar Farms) and Hugh echoed those of Day 1’s discussion over breakfast; addressing knowledge gaps between parties early and consistently is instrumental to deal success.

Stephen foreshadowed that corporates facing lengthy, inefficient PPA negotiations means they might have to become renewables experts themselves, a signal which could deter offshore capital procurement. ‘The renewables industry needs to be thinking much more about [companies] like Nectar’ in addition to giants like Woolworths; ‘that’s where new growth and investment is coming from’.

Dan advised developers to be cognisant of the possibility of the time-intensive nature of these deals arousing frustration within the deal team that might be itching to move onto the next procurement project, emphasising that ‘a high level of emotional intelligence’ ought to be administered throughout. ‘If the corporate isn’t sophisticated, if it doesn’t have a great advisory team, if they aren’t a member of the BRC-A, what can they do?’

3. Transparency and clarity are paramount

Peter Dobney (Orora), Lachlan, Dan and Hugh were in unanimous agreement thattransparency between parties minimises pain points and drives efficient, mutually beneficial deals.

Lachlan says gaining ‘clarity around what customers are looking for’ and in turn ‘delivering clarity’ as a developer is necessary for identifying core objectives of the undertaking. A key aspect of this exchange is facilitating buyer awareness around potential project limitations: risk allocation, for example, may look very different for an individual developer versus a retail contract backed by a diversified portfolio of generation.

Dan revealed that corporate buyers can also find themselves frustrated by an ‘incremental degradation of commercial, legal and technical aspects of the proposal originally submitted by the bidder’ which in the past has resulted in developers losing out; his antidote is to be explicit and upfront, setting clear expectations rather than evoking suspicion through value erosion. Stacey Vacher (Edge Energy Services) mirrored this point, saying developer dissatisfaction can arise from a lack of visibility on the client’s internal approval processes, but echoed Dan’s advice on the necessity of open communication.

Being mindful not to overlook the inclusion of pertinent information in applications is also important to Dan: in such a scenario a corporate’s ‘natural imperative will be to disregard rather than wait around and waste time’. Instead, ‘observing the rules of engagement’ and attention to detail helps ‘build trust and rapport’. According to Hugh, submitting complete applications that appear to ‘understand customers beyond the technical and financial parameters’ facilitates mutual appreciation.

4. Corporate ambition is driving retail product innovation

Chris Halliwell (Renewable Energy Hub) notes that the cPPA transition has arisen from customer-led disruption, signifying corporates are displaying preparedness to take on risk to capture economic opportunities. Understandably, he admits, it has taken some time for retail options to match rapid market development, but customers have become increasingly empowered to pick and choose attractive options and proactively manage their risk exposure. Daniel Teng (Origin Energy) says Origin has been paying particular attention to the evolving cPPA market and responds according to what new products are being required by their customer base.

Challenges do remain, but new value emerges once they are better understood: Jonathan Filbey (Octopus Investments) revealed emerging transaction structures are beginning to explore how outstanding risks like MLF assumptions and grid connection timeframes can be shared between equity owners and developers.

Stacey has optimism for the retailer market, also pointing to new deal structures allowing additional risk management through competitive firming. ‘Customers are demanding choice and driving product development’.


Final remarks from the BRC-A

The Business Renewables Centre Australia would like to sincerely thank all of its guest presenters involved in the sessions on both days for their professionalism and insights, and extend gratitude to the Clean Energy Council for their invitation and ongoing collaboration.

Share this article

Related Content

Australia’s First Business Renewables Centre Launches

Large Australian organisations looking to switch to renewable energy will now be able to turn to Australia’s first Business Renewables Centre to help them to procure solar or wind energy through a renewable Power Purchase Agreements.

Unlocking value and realising opportunity through corporate PPAs

It is by no means controversial to suggest that corporate buyers can benefit from entering into a renewable Power Purchase Agreement. Jon Dee (RE100), a frequent collaborating partner with the Business Renewables Centre Australia (BRC-A), delivered an inspiring address on 30th July to the stakeholders gathered at the BRC-A-hosted breakfast discussion on recent corporate renewable …

Our office

Climate-KIC Australia
Bldg 25, 4-12 Buckland St
Chippendale, NSW 2008 Australia

View map

Get the latest

Keep up to date and follow us on social media.