Traditionally the risks associated with long-term energy contracts have been dealt with in Europe by utilities which have a deep understanding of the energy market and large diversified portfolios of projects and technologies to spread the risk. They have had to develop sophisticated strategies to incorporate an increasing amount of variable renewable electricity. As renewables become the main energy technology for large energy companies and new renewable energy suppliers enter the market, corporates are increasingly interested in signing long term PPAs. It is essential they gain an understanding of the risks they could be exposed to.

The corporate renewable Power Purchase Agreement (PPA) is an electricity supply contract between a renewable power plant (or several power plants) and a corporate buyer (or several buyers). The corporate PPA has developed from a traditional supply contract between utilities and conventional power installations.

However, the risks associated with a renewable electricity supply are significantly different to the risks involved with a conventional electricity supply. This is because renewable power plants have zero cost for fuel and produce based on the resource availability (which is variable) whereas conventional power producers’ costs are dependent on fuel prices but can produce a stable output, generally better matching the buyer’s demand profile. As such, the corporate renewable PPA has developed into an extensive legal document with a myriad of clauses to assign the various risks to the relevant counterparties.

As corporate PPA contracts become more commonplace, various innovations are likely to simplify the burdensome contracts and a number of different methods to mitigate the various risks for each party are likely to evolve.

This report, with contributions from the providers of such risk mitigating products, aims to provide corporates new to renewable PPAs with information on how risks can affect their business and the various strategies/products available to mitigate them.

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