A new ACORE report says corporate use of power purchase agreements remain integral to getting large solar projects off the ground.
Corporate use of power purchase agreements (PPAs) is more important than ever, says a report by the American Council on Renewable Energy (ACORE).
“Clean energy is advancing at its fastest pace in history, and corporate buyers are helping to drive that momentum,” Lesley Hunter, ACORE’s senior vice president of policy and engagement, told pv magazine USA.
According to ACORE, voluntary offtake agreements with large corporations help secure financing for clean energy projects. Wind and solar are often the least expensive forms of new energy generation, but project sponsors are typically unable to fund their upfront construction costs without external financing sources. Without offtake financing, the report said, projects are often unable to get the necessary financing to bring the project to fruition, the report said.
The report argued the clean energy projects do not typically secure critical sources of project financing (such as tax equity) until a PPA is signed by a creditworthy offtaker. Corporate offtakers, the report said, “help projects clear this substantial financing hurdle in the project development process.”
Corporations have procured more than 55 GW of green energy through PPAs since the start of 2021, according to the report. Based on data from the American Clean Power Association, this is about half of the overall demand for utility-scale wind, solar and energy storage projects.
“By providing a long-term revenue source, corporate offtake agreements mitigate risks for clean energy projects and enable developers to obtain needed financing for construction,” Hunter said. “Corporate offtakers are filling a critical gap by driving demand and enabling the buildout of affordable and reliable energy across the U.S. power grid.”
Many wind and solar-rich states in the U.S. are in regions where there isn’t a capacity market. According to ACORE, this makes “corporate offtake a critical pathway for projects to achieve compensation that reflects the full resource adequacy value they bring.”
Regions with a capacity market are also subject to frequent rule changes and price volatility. ACORE said corporate offtake makes financing cheaper and more attainable because it helps mitigate the uncertainty in how much revenue a project will earn in capacity auctions.
Whether physical or virtual, long-term PPAs play a key role in de-risking because they enable financing at lower rates. As long-term agreements, the project is “significantly more likely to get the financing it needs and begin producing clean power for the grid,” the report said.
ACORE said many projects become uneconomical when risk-averse lenders and investors price in the costs of merchant-project volatility. However, corporate-offtake agreements make these projects more attractive to risk-averse lenders by providing a stable price for the generated electricity. This allows for a lower rate from investors, and in turn, how much is needed for the project to break even.
Another claim the report sought to debunk was that state requirements for clean energy have made voluntary corporate procurement no longer necessary.
State-level renewable portfolio standard (RPS) and clean energy standard (CES) policies are insufficient to drive growth at the speed required to meet rapidly increasing electricity demand and achieve power sector decarbonization, the report said. Clean energy growth has “far outpaced the levels specified in state-level RPSs and CESs,” the report said, and only 35% of renewable capacity additions in 2023 were associated with RPSs and CESs.
Additionally, 21 states do not have binding requirements for clean energy procurement, many of which are home to rich renewable sources, the report said. In these regions, virtual PPAs from corporations with facilities in other regions are helping the U.S. spur economic activity in regions that would be slower in the uptake of clean energy technologies, the report said.
“Corporate decarbonization goals are driving multi-gigawatt growth of [virtual PPAs] across the U.S. in deregulated markets, including areas with some of the most carbon-intensive grids, a clean energy developer cited in the report, said. “Corporates are also driving green tariffs and sleeved-utility PPAs in regulated markets, enabling more renewable power to come online beyond what’s driven by state-mandated RPS goals.”
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