Powering your business with renewable CPPAs

While a power purchase agreement (PPA) is made between a power generator and a third party – often an energy supplier – a CPPA is a contract directly between an organisation and a power generator.

By agreeing to purchase power directly from a generator, an organisation (or group of organisations working in conjunction) can point to the precise source of their renewable energy.

Benefits of CPPAs

CPPAs offer a number of benefits for both the organisation buying power and the renewable generator:

Know where you power comes from

Building a relationship with a renewable generator, such as a wind or solar farm, allows organisations to point to a named source of renewable power.

This offers employees, customers, and investors a more tangible source, location, and even community from which an organisation draws power from.

More power, longer term, less risk

CPPAs are normally larger than PPAs and made between heavy energy consumers and large-scale renewable facilities.

CPPAs are typically longer term, with 10 – 15-year contracts common. This reduces risk for both parties by locking prices over a longer term than liquid markets.

Social and environmental benefits

The ability to attribute your renewable power to a named generator brings brand value and can help your business towards its Environmental, Social, and Governance (ESG) goals.

Ultimately, by agreeing to a CPPA your organisation is supporting renewable energy in the UK, contributing to decarbonisation, and building towards a net zero future.

Benefits for the generator

CPPAs also have advantages for generators. As many renewable subsidies continue to be phased out, CPPAs offer a new route-to-market.

The longer-term nature of CPPAs also means they can serve to unlock financing for larger scale renewable projects.

Different types of CPPAs

Every organisation has its own unique energy requirements, as a result every CPPA looks different.

There are several factors you need to consider before striking a deal with a generator including:

• Technology type
• Expected Commercial Operation Date (COD)
• The quantity of power required
• Location of the generator
• Potential break clauses
• The structure of the CPPA
• The distribution of risk between the generator and your organisation
• How the CPPA can be incorporated with an energy supply contract

While there are a range of elements to consider in a contract, there are roughly three different types of CPPAs:

Direct CPPA

In the case of a direct CPPA, also known as a private wire, a generator operates or builds a new renewable asset near or on the power consumer’s site.

Electricity that’s produced goes directly to the buyer, bypassing the grid and avoiding energy transmission costs.

Indirect CPPA

CPPAs don’t require a generator to be located on or even near the purchasing organisation’s site. With an indirect CPPA the renewable asset can be located anywhere and feed energy into the grid.

In indirect CPPA agreements, consumers still purchase and receive power from a generator. However, this power is sleeved by an energy supplier through the grid and supplied to the consumer's point of consumption. Renewable Energy Guarantees of Origin certificates (REGOs) are used as proof that the consumer has used renewable energy from the generation site.

Synthetic/Virtual CPPA

A synthetic or virtual CPPA is a financial arrangement between the consumer and generator.

Like an indirect CPPA the generator supplies power to the grid, however the consumer does not receive any power from the generation site. Instead, the consumer will need to be supplied separately from their electricity supplier. REGOs can be still be used to show the consumer is decarbonising the electricity mix by 'synthetically’ or ‘virtually' purchasing renewable energy.

The generator and consumer agree on a pricing mechanism for ongoing ‘swap’ transactions based on the difference between a contractually agreed fixed price of power and the variable spot market price.

Synthentic or virtual CPPAs are considered a simpler arrangement, but they may require financial compliance and reporting obligations. For this reason, the financial implications and accounting statement influence should be considered before proceeding with this option.

How Drax can help

CPPAs can be complex contracts to set up. As a licensed renewable energy supplier, Drax can facilitate the registration, balancing, and settlement of the contracts. We can also connect generators and developers looking for a CPPA.

Drax can also provide a ‘sleeving’ contract to help manage the electricity and money transfer on behalf of your organisation.

Or, if you’re looking for a more short-term CPPA, we can help there too, thanks to our own pumped storage hydro assets.

Get in touch to find out more about how Drax can help you set up a CPPA.