What are Cross-Border PPAs?
As the global transition to cleaner energy accelerates, corporate energy sourcing strategies are evolving to reflect ambition and necessity. Among the most innovative tools enabling companies to meet their sustainability objectives are cross-border PPAs - international power purchase agreements that transcend national grids and open access to a broader array of renewable energy options.
At their core, cross-border PPAs are agreements in which a corporate buyer sources renewable energy from a generation asset located in a different country. This differs from domestic PPAs, in which both the consumer and generator are within the same national grid.
One key enabler of cross-border PPAs is the use of Guarantees of Origin (GOs) or equivalent energy attribute certificates. These certificates allow corporations to claim the renewable characteristics of electricity generated abroad, even if the physical electrons never reach their local operations.
Cross-border PPAs come in two primary forms: physical and virtual. Physical cross-border PPAs involve the delivery of electricity across national borders via interconnected grids - often requiring cross-border transmission rights and market access. In contrast, virtual PPAs (VPPAs) are purely financial agreements. Under a VPPA, the buyer pays a fixed price for renewable energy while selling the power into the local wholesale market. The buyer then retains the GOs to support carbon reduction strategies, even though no electricity is physically delivered.
Why are companies turning to Cross-Border PPAs?
There are several reasons for organisations to explore cross-border solutions for renewable energy procurement. In countries with limited renewable infrastructure or constrained availability, securing green electricity domestically can be challenging. Cross-border PPAs enable companies to overcome this hurdle by tapping into more developed renewable markets abroad.
Environmental, Social, and Governance (ESG) objectives and achieving carbon neutrality goals has become non-negotiable for many businesses. Cross-border PPAs provide a credible way to demonstrate climate leadership, particularly when domestic options are insufficient or economically unfeasible.
From a financial perspective, international power purchase agreements may offer access to lower-cost renewables. Countries such as Spain and the Nordics boast high solar and wind yields, respectively, making their projects more economically attractive. For multinational corporations, cross-border PPAs support regional and global corporate energy sourcing strategies, enabling standardised approaches across multiple jurisdictions.
How do Cross-Border PPAs work?
While the idea is straightforward, executing a cross-border PPA requires careful structuring. Most are underpinned by virtual contracts, enabling buyers to hedge energy prices and secure renewable attributes without physical delivery. This is typically facilitated through a contract-for-differences mechanism. If the market price of electricity is lower than the agreed PPA price, the buyer pays the difference - and vice versa.
Intermediaries and energy traders often play a crucial role as balancing parties or market access providers. These parties handle regulatory filings, manage settlement risk, and enable participation in foreign electricity markets.
Access to cross-border transmission networks, grid capacity, and interconnector availability is vital to physical PPAS. Legal and regulatory compliance across jurisdictions adds further complexity. For example, navigating European market coupling rules or national regulations around third-party power sales can be challenging.
Currency risks, taxation, and legal jurisdiction are additional considerations. Hedging strategies and local legal expertise are essential to mitigate volatility and ensure compliance with host-country laws.
Benefits of Cross-Border PPAs
One of the most compelling advantages of cross-border PPAs is the expanded access to diverse renewable energy markets. Buyers are no longer confined to local constraints and can select projects that best align with their financial, technical, and ESG priorities.
Cost optimisation is another significant benefit. Companies may achieve better pricing than domestically available renewables by entering long-term contracts in markets with abundant and competitively priced renewables. The competitive pressure in larger markets also often leads to more favourable PPA terms.
Flexibility is a core strength of virtual cross-border PPAs. These agreements allow corporates to centralise their renewable energy procurement without needing physical infrastructure at every site. This supports consolidated reporting and consistent execution across global operations.
Most importantly, cross-border PPAs serve as a cornerstone of long-term carbon reduction strategies, helping organisations make credible progress towards net-zero targets and providing visibility on energy costs over time.
Challenges and Risks to Consider with Cross-Border PPAs
Despite the benefits, cross-border PPAs are not without challenges. One of the most significant is regulatory complexity. Navigating multi-jurisdictional energy laws, market rules, and compliance obligations requires specialist expertise.
Currency exposure introduces financial risk, especially in volatile markets. Exchange rate fluctuations can materially impact a deal's economics if not properly hedged. Price volatility in wholesale electricity markets is another concern that must be modelled and mitigated through robust risk management.
Cross-border transmission capacity and grid constraints may limit the feasibility of physical PPAs. Even in virtual arrangements, access to well-functioning energy markets is crucial.
Finally, the legal intricacies of structuring cross-border contracts - including dispute resolution, liability provisions, and performance guarantees - can be daunting. These risks underscore the importance of engaging experienced legal, commercial, and technical advisors.
Where are Cross-Border PPAs gaining momentum?
Europe is at the forefront of the cross-border PPA trend, underpinned by EU energy market integration. The internal energy market facilitates electricity trade across national boundaries, making cross-border deals more practical and attractive.
Spain, thanks to its sunny climate, and the Nordics, known for their wind and hydro resources, are particularly active markets. Germany, too, has emerged as a key hub due to its ambitious Energiewende policies and growing demand for green energy.
Beyond Europe, regions such as Southeast Asia and Latin America are beginning to explore cross-border models, often with support from multilateral development banks or regional energy initiatives. Multinational corporations, especially those with operations spanning multiple geographies, are leading the adoption curve, viewing cross-border PPAs as central to their sustainability playbooks.
Is a Cross-Border PPA right for your organisation?
Deciding whether to pursue a cross-border PPA requires careful internal analysis. Begin by assessing your organisation’s energy footprint, geographic distribution, and long-term carbon goals. Are local renewable options limited or costly? Do you operate in countries where grid decarbonisation is lagging?
Legal, financial, and technical due diligence is critical. Engage advisors early to evaluate contractual risks, regulatory requirements, and market dynamics. Tools such as scenario modelling and PPA benchmarking can provide valuable insights.
In some cases, a domestic or on-site solution may be more appropriate. However, if your organisation operates internationally or faces local supply constraints, cross-border PPAs can offer superior flexibility and impact.
Cross-border PPAs represent a powerful evolution in renewable energy procurement, enabling corporates to transcend geographic limitations in pursuit of their decarbonisation goals. By unlocking access to clean energy sources across borders, these agreements support corporate energy sourcing strategies that are both scalable and future-focused.
They offer a flexible and often cost-effective path to green energy, especially in regions with limited renewable generation. Through virtual PPAs and the use of Guarantees of Origin, companies can claim renewable energy use and emissions reductions, even without physical delivery.
However, the complexity of international power purchase agreements demands careful planning. Legal, financial, and regulatory diligence is non-negotiable to mitigate risks and ensure long-term success.
With the right strategic approach and trusted advisory partners, cross-border PPAs can become a cornerstone of your organisation’s global carbon reduction strategy, driving sustainability performance while delivering commercial value.
