Environmental sustainability
Entering into a PPA could proactively help your business to reduce carbon emissions as you replace the energy consumed by your general business operations with renewable energy. The energy consumed can be more easily quantifiable as 100% rentable energy, as in some cases it is coming entirely from a single source - the PPA project. Consuming 100% renewable energy can also help achieve sustainability goals such as overall carbon footprint reduction.
Price certainty and cost reductions
Fixed price energy eradicates the volatility of energy pricing as energy is set at a price over a long period, which, over time, could result in cost savings for an energy buyer in a PPA arrangement. A PPA can also reduce the overheads of a common looking to reduce their carbon emissions as it eradicates the need to invest in purchasing renewable generation equipment, such as solar panels, as the investment falls to the renewable energy project owner.
Aligning PPAs with Corporate Environmental Objectives and ESG Commitments
When building a PPA, key elements to consider are the environmental objectives of your company. This can concern the energy seller and their corporate credentials as a new supplier, your company’s own environmental objectives from an environmental, societal and governance (ESG) perspective and also the reduction of your carbon footprint along with any legislative considerations. It’s integral that the PPA aligns with your business’ ESG commitments, so before drafting a PPA, it’s worth asking yourself the following questions:
What are my ESG goals?
ESG goals fall broadly into three categories - environmental, societal and governance. When entering into a PPA, you should examine your business - and your own, if you are a key stakeholder - ESG values and identify which ones are business critical. For the majority of PPAs, we are likely looking at the environmental values of your business, for example, increasing biodiversity. But if societal goals are important - which usually concern making the world a better place for marginalised communities or developing nations, you might look to enter a PPA with a renewables provider in a developing nation that would help to hit two of your ESG goals.
Do the environmental objectives of the energy seller align with my corporate environmental objectives?
Once you’ve identified your ESG goals, you can begin to search for a PPA that aligns with your specific corporate environmental objectives. While you’re already feeding into environmental objectives with the onboarding of a renewable energy supplier, there are still elements you might still want to consider such as the ethical source of the energy and whether the project is deemed carbon neutral. You might want to learn how they reduce their own carbon footprint or how biodiversity is championed in the project. This is part of a process called carbon conscious investing.
Will entering this PPA help my business to reach sustainability goals?
Leading on from considering your own green portfolio, you might also consider how the PPA might directly impact your green portfolio and even help you to reach certain sustainability goals. Onboarding a renewable supplier might help you hit approaching carbon reduction targets or help you weather changes to legislation. This is where your governance values might also come in - you can take a look at how the board of your potential energy seller approaches issues like reducing their own carbon footprint and whether they deal in carbon offsetting.
Engaging Stakeholders & Measuring Impact Through Corporate PPAs
Engaging in a PPA may help you hit KPIs for both external and internal stakeholders. External stakeholders may be carbon conscious investors, which means they consider the sustainability credentials of everyone that they deal with from a business perspective in relation to the impact on their own carbon footprint. Engaging in a PPA may frame you as sustainably positive as you are investing in renewable energy, potentially impacting your carbon footprint and by proxy, potentially impacting theirs.
On an internal basis, internal stakeholders may have departmental sustainability goals that a PPA may help them obtain. For example financial stakeholders may aim for certain penalty reduction goals associated with impending governmental carbon emission reduction targets. When considering a company’s brand image, a PPA may positively impact a brand from a sustainability perspective, which could help to engage marketing-led stakeholders.
Business Case for Adopting Corporate PPAs: Challenges
Legislative changes and how to weather them
As renewable energy supply is still a relatively new method of energy supply, the regulatory landscape around PPAs is complex and changeable. To weather the volatility, correctly monitoring the market and predicting how legislative changes may positively or negatively impact your price certainty is crucial to ensure a competitively priced energy supply over a long period as part of PPA.
Contractual & operational risk management
As PPAs are complex contracts, the success of a PPA hinges on a deep understanding of the market and careful monitoring of the contractual requirements. Risk of elements such as operational expectations, grid connection and project performance need to be carefully balanced with pricing to ensure the PPA is suitable for the needs of your business.
Financial elements
PPAs can include high upfront costs as renewable technology is developed and installed, which is why it's important to examine the terms of the PPA to ascertain whether the PPA is a financially viable one. Negotiated correctly, upfront costs have the potential to balance out in time over the lifetime of the PPA project.
