The appetite for PPAs in light of COVID19

Published 24 Apr 2020

By Finnian Murphy, Business Renewables Centre - Australia

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      • A strong pipeline of projects is progressing, although strong headwinds are resulting in some delays
      • A longer-term perspective is encouraged since fundamental market risks will remain
      • Economic stimulus with local content will add extra value for jobs and supply chains
      • Climate change and stakeholder expectations remain as pertinent as ever 

On Wednesday 8th April 2020 the Business Renewables Centre Australia (BRC-A) hosted their first instalment of its 2020 webinar series Buying Power.

More than 170 renewable energy buyers, project developers and professional service providers tuned in to hear expert insights on Australian corporate renewable power purchase agreement (PPA) market activity amidst the COVID-19 pandemic.

There is strong PPA market activity despite the COVID 19 slowdown  

The slowdown in economic activity has seen declining gas prices and a reduction in wholesale electricity prices while at the same time project costs have risen in part due to higher equipment costs resulting from a weakened Australian Dollar, and network issues. This has placed upward pressure on PPA pricing.

This might prompt buyers to wonder why would I enter a PPA now?

Our experts confirmed the case for PPAs still stands; buyers should focus on the longer-term drivers. While economic activity and electricity demand will eventually recover, the energy transition will continue with marketplace volatility as renewable energy replaces exiting coal-fired power stations in coming years.

“If you are able to retain a long-term perspective, a well-designed corporate PPA remains a valuable risk management strategy to deliver greater budget certainty and mitigate the risk of higher prices in the medium- to long-term.”

Furthermore, customers and stakeholders will continue to expect their suppliers and clients to pull their weight in emissions reduction.

There are currently a significant number of transactions at advanced stages carrying over from last year, and there is strong underlying activity among buyers progressing deals. PPAs remain a key component for new project finance.

 

COVID-19 risks need to be managed 

New risks require management across all parties including developers, investors, construction firms and buyers. The pandemic has threatened international supply chains and affected Australia’s exchange rate and international mobility. There could be reduced bandwidth for making strategic decisions. Some project owners that have secured funding, approvals and equipment are proceeding whereas others could struggle to achieve shovel-readiness.

Acciona’s proposed 1 GW MacIntyre Wind Farm is a great example of this with Queensland State Government-owned CleanCo contracting 400 MW as an offtake to complement Queensland’s solar profile and provide certainty for other potential offtakers. MacIntyre is due to commence construction in 2021.

COVID-19 can be an opportunity to rethink whole-of-business resilience including the creation of more localised manufacturing jobs and supply chains to place renewables in a stronger position for the future.

 

Aspects of PPA development can still proceed 

When the COVID-19 pandemic began, some expected renewable energy projects would grind to a halt – but many stages of the PPA procurement process for corporates have continued. While engaging consultants, bidding preparations and term sheet negotiations and some other activities can continue, internal stakeholder engagement and capturing the attention of the Chief Financial Officer at different stages of the process might prove far more complicated depending on the business.

Ageing fossil fuel infrastructure and a recovering economy will mean that the financial motivations for PPAs are still pertinent. Corporates that take a longer-term perspective to evaluate current market opportunities and risks, and the available options in terms of pricing models, volume and tenor, may be well positioned to consider a PPA at this time.

 

Government also has a critical role to play to stimulate the market

In allocating stimulus funds to restart the economy, governments will seek to protect jobs and in the next phase, projects that create significant job numbers will be a high priority. Infrastructure investment including renewable energy projects should feature highly, particularly if there is an opportunity to incentivise and support resilient local supply chains in light of the slowdown in Asian manufacturing.

Governments have a clear opportunity to focus on supporting utility-scale projects (CleanCo is a good example) and underwriting some of the legal, due diligence and other costs of tendering processes, particularly for mid-size commercial and industrial buyers and aggregations in regional areas, thus supporting both white and blue collar jobs.

 

Corporate PPA announcements in 2020

 

The first Buying Power webinar featured insights from the following experts:

    • Simon Corbell – Chief Advisor, Energy Estate
    • Anita Stadler – Corporate Renewable Energy Strategist, Energetics
    • Jenya Khvatsky – Director, Business Development, WePower
    • Jeff Nitsch – Senior Manager Origination, Acciona
    • Jarrah Bassal – Sustainability Manager, Energy and Carbon, Transurban
    • Jonathan Prendergast – Technical Director, BRC-A


About the BRC-A’s 2020 Webinar Series: Buying Power 

Designed to provide Australian organisations with the know-how to procure renewable PPAs, the Business Renewables Centre Australia’s 2020 webinar series puts the spotlight on key topics of the Australian PPA market.

Sign up as a BRC-A member to stay astride of future webinars.

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