Power purchase agreements: A key tool for the green transition
As European corporations grapple with the challenge to reduce their carbon footprint and meet ambitious climate goals, power purchase agreements (PPAs) are emerging as a strategic tool to accelerate their green energy procurement.
By providing a framework for long-term, predictable energy supply from renewable sources, PPAs offer a compelling solution to address both environmental and financial objectives, with benefits including:
- Reduced scope 2 emissions: By sourcing electricity from renewable energy sources, corporations can significantly reduce their scope 2 emissions, which are indirect emissions resulting from the generation of purchased electricity. This aligns with the growing regulatory pressure and market expectations for sustainable business practices.
- Long-term planning: PPAs offer the advantage of both locking in electricity prices for extended periods and indeed tailoring long term supply with energy demand profile. This can provide much-needed stability (both cost and volume) in a volatile energy market as we’ve seen in recent years especially, mitigating the risk of fluctuating prices, supply uncertainty, and enabling more accurate financial and operational planning.
- Enhanced corporate reputation: Embracing renewable energy through PPAs demonstrates a strong commitment to sustainability and corporate social responsibility. This can enhance a company's brand image, attract environmentally conscious investors, and foster positive relationships with stakeholders.
- Support for renewable energy development: By entering into PPAs, corporations contribute to the expansion of renewable energy infrastructure. This not only supports the transition to a low-carbon economy but also creates new investment opportunities and economic growth.
We have observed a growing interest in particular types of PPA structure, such as 24/7 Matching and Firm Dispatch. Both require careful planning and coordination to ensure contractual structures are met and required energy storage in place. In the case of 24/7 matching supply and demand, developers often deploy advanced monitoring systems and flexible load management strategies to ensure the energy generation matches the corporate’s hourly energy consumption profile. With Firm Dispatch, corporates appreciate the associated guarantee of a firm delivery quantity of renewable energy at predetermined times, particularly considering ongoing market volatility and macro uncertainties. One of the drawbacks of Firm Dispatch from a developer perspective is the often-hefty financial penalties imposed on failing to meet agreed delivery obligations. As a result, back-up generation, a diversified energy supply mix, grid reliability, and energy storage are essential.
Over the past year, DNV’s Green Energy Procurement team has broadened its horizons, extending its expertise to the global markets. Our efforts have transcended European borders, reaching into the dynamic landscapes of APAC, Africa, and North America – combining local market expertise with deep experience in (renewable) power generation technologies and PPA best practice.
We have observed a surge in corporate interest, particularly in the APAC region, as companies strive to comprehend the mechanisms available for mitigating their Scope 2 emissions. In China, the evolving market and the ambiguity surrounding the utilization of local Green Energy Certificates (GECs) and the future of I-RECs have sparked significant attention. Similarly, India, Malaysia, and Thailand have seen a heightened interest due to the increasing availability and accessibility of green energy options, such as green tariffs. These initiatives are a testament to the commitment towards RE100 targets and addressing the challenges in less developed markets to procure viable solutions for the local operations of global corporations.
Moreover, the ISCC certification and advisory services have gained popularity across APAC. DNV has played a pivotal role in aiding organizations to navigate the local procurement requirements versus the verification mandates of RED II and III, ensuring alignment with ISCC standards.
In addition to these services, there has been a notable uptick in corporate activities seeking assurance and verification of green energy usage in operations and supply chains. Many leading global entities are not only focusing on achieving their own sustainability goals but are also ensuring that their supply chains adhere to the highest ESG standards. This includes sourcing green energy for their suppliers’ manufacturing processes.
Culminating these efforts, DNV has successfully facilitated a 12-year physical PPA for a pan-European spare parts manufacturer in Poland. This landmark achievement, amidst the backdrop of recent uncertainties, underscores our dedication to providing comprehensive PPA advisory services. As the demand for meeting the 2030 sustainability targets escalates, our team is eager to extend these services across Europe, reinforcing our commitment
10/3/2024 8:38:00 AM