With the increasing push towards using renewable power, the amount of investment that goes into gigantic offshore wind farms and solar plants is increasing every year. Around the world, countries are looking for power-generating companies to provide solutions, and in this blog, we will look at one key aspect of the relationship between the business world and the generators.
What are PPAs?
PPAs or Power Purchase Agreements are when a company signs to buy the power at a fixed price on a long-term basis. The longevity and fixed price aspect mean that the company no longer has to worry about the traditional price volatility seen in the power markets.
Why does PPA matter?
The Power producers invest an enormous amount of money to create their facilities, be it solar farms, power stations,s or offshore wind farms. They have been incentivized for a long time to make these investments by government subsidies which guarantee the price they will receive or lower the cost of producing the power.
In Europe, we are seeing subsidy schemes being lowered, expiring, or withdrawn entirely, at the same time stricter environmental guidelines are being created and enforced. This means that generators need a way to sell green electricity with as little price volatility as possible, one answer being a power purchase agreement (PPAs). Another benefit of PPA is that consumers have a much more predictable price for the power they use.
The biggest consumers of energy are companies and corporations. Around the world, many companies are looking for 24/7 access to renewable power, as reliably and cheaply as possible. By committing to long-term PPAs with energy providers the companies achieve two things- Firstly they achieve their aim of having reliable renewable energy available whenever they need it. And secondly, they give developers their return on investments to build power-generating facilities, stimulating the market and reducing the reliance on state business.
Europe has seen massive growth in onshore wind and solar deals. Offshore wind farm agreements are also starting to be done. AB InBev a brewing company has a goal of using 100% renewable energy across its global operations. And this year they signed the largest solar PPA in Europe. The 130 MW agreement will supply enough electricity for 14 breweries across the continent which also means that the german developer is able to finance two new projects.
Offshore wind is the very obvious solution for corporate PPAs, because of its scale and its being as green as it can get. In Taiwan, a 20-year contract was signed by a national semiconductor company for a full production of 920 MW offshore wind farm which will come into commercial operation in 2025-26.
The potential for the market in corporate PPAs for offshore wind is huge, but the scale of investment is needed, which means that the government is still likely to back the larger offshore schemes in one way or another.