Risk management: Corporate PPAs – A Continuing Trend

3 mins  09.11.2018 Eliza Bartlett

Corporate PPAs are an increasingly important part of a corporate’s risk management strategy and there are various structural and resourcing issues that corporates need to consider.

Corporate energy users are increasingly viewing a corporate power purchase agreement (PPA) as a workable option for their energy needs and an important component of their overall risk management strategy. Corporate PPAs, which are large-scale, long-term power purchase agreements with renewable energy generators, enable corporates to take control of their long-term energy needs. The numbers are compelling: Energetics reports that since 2016, Corporate PPAs have supported renewable energy projects with a combined capacity of more than 2550MW. This is a significant step-change in how new generation in Australia is supported. Examples of corporates that have already entered into them include local governments, educational institutions, financial institutions, and manufacturing, technology, agricultural and retail businesses.

The uptake of Corporate PPAs also represents a marked shift in the willingness of corporates to actively participate in energy markets. Previously large energy consumers (other than the very large energy consumers such as aluminium smelters and data-processing centres that may have contracted directly with generators), would procure their energy needs via competitive tenders for fixed term, fixed price energy supply agreements. A Corporate PPA on the other hand, usually involves a direct, long-term relationship between the consumer and generator (noting that there are some contract models that do not involve this direct relationship – for example, where a retailer enters into a PPA with a specified generator and manages the PPA on behalf of the corporate).

Each corporate will have its own motivations for entering into a Corporate PPA but the most common drivers cited are the significant increase in electricity prices and in green product prices that we have seen in recent years; the desire to hedge against energy market volatility; achieving greater budget certainty (as Corporate PPAs offer long-term price certainty); in-house sustainability targets; and the falling costs of renewable energy generation.

Corporate PPA Contracting Models

There are a number of different renewable energy PPA contracting models, as well as pricing models, that can be used. The contracting models broadly fall into one of the following three categories:

Unsleeved PPA 

An 'unsleeved' PPA (also known as a 'synthetic' or 'virtual' PPA) is a financial derivative or contract for difference, under which the parties agree a fixed price that is settled against the spot prices in the NEM. Where the NEM spot price over a specified period (a month, a quarter or contract year) is higher than the fixed price, the generator pays the difference to the corporate and where the NEM spot price is lower than the fixed price, the corporate pays the difference to the generator. Under this model, there is no physical supply of electricity to the corporate from the generator so the corporate will need to continue to procure electricity from the NEM (or a retailer) to physically procure its load requirements.

Sleeved PPA

A 'sleeved' PPA (also known as a 'physical' PPA) is where the corporate's retailer bundles the output (both benefits and obligations) of the Corporate PPA with the retailer's provision of electricity to the corporate', thereby integrating the two. There are a wide variety of models for sleeved PPAs and the contracting arrangements will depend on the variation adopted. Some variations involve the corporate entering into a PPA with a retailer only, and some involve the corporate entering into a PPA with both a retailer and the generator. Depending on the arrangements, the corporate may also need to enter into a supply agreement with the retailer or a third party for firming electricity (for when the corporate's consumption does not meet the generator's output).

Behind the meter

A 'behind the meter' PPA is where the renewable generator (for example, rooftop solar or on-site wind) is installed (possibly with a storage solution) 'behind the meter' at the corporate's site and directly supplies the corporate's load, offsetting consumption that would otherwise be procured from a retailer. This is the simplest form of renewable energy PPA but is available only where the generator can be 'co-located' with the corporate's load. Under this model, the corporate enters into a PPA with the generator and the corporate will usually continue to procure electricity from a retailer to cover its load requirements when the generator is not generating, although this may not be necessary if the generation is paired with a storage solution.

The question of which model is most appropriate for any given corporate will depend on a range of factors including the corporate's risk profile – including their capacity and appetite for risk – their load profile, their in-house capabilities, and their accounting policies.

Other Considerations

Other structural and resourcing issues that a corporate will need to consider include:

Bundled pricing, LGC only or electricity only

While it's more common to enter into a bundled pricing Corporate PPA covering electricity and LGCs, it is also possible to enter into a Corporate PPA for LGCs only or electricity only. The long-term nature of Corporate PPAs require corporates to take a long-term view on electricity spot market prices and LGCs. Because this is usually outside of the corporate's core business, the corporate will usually engage consultants to assist with pricing issues.

Single buyer or multi-buyer

If a corporate's load size is sufficient to support the development of a new renewable project, then the corporate can contract as a single buyer, but this is not always the case. To overcome this issue, corporates are increasingly 'pooling' together to become a buying group, thereby aggregating their loads. Again, where a buying group approach is used, there are a range of structuring options that can be used, including formalising the buying group as a special purpose vehicle (SPV). Under this model, the buying group SPV enters into a PPA with the generator and a joint venture agreement between the corporate buying group members will 'sit behind' the PPA. Where a multi-buyer group is used, key issues include risk allocation and governance.

All or partial load

A corporate can choose to contract for 100% of their consumption and so fully hedge their exposure to price increases and energy market volatility, or to contract for part only of their consumption so as to partially hedge against such increases and volatility.


There is an inevitable tension between corporates on the one hand, who would generally prefer to contract for 5 or so years only, and project proponents on the other hand, who want to contract for 10-15 years so as to 'bank' the project. It is unlikely that a 5 year PPA could underwrite a new electricity generation project. This is because, for a project proponent to obtain financing on the basis of a 5 year PPA, they would need to charge a much higher price per MWh so as to recover their investment costs over that shorter period – and that price would be uncompetitive. This issue was recently noted by the ACCC in its Retail Electricity Pricing Inquiry and led the ACCC to recommend that the government introduce a program under which it will guarantee offtake from a new generation asset (or group of assets) in the later years of the projects (say years 6-10 or 6-15) at a low fixed price (say $45-50 per MWh) sufficient to enable the project to meet financing requirements.


The corporate will need to ensure that they have the appropriate personnel and resources (eg IT systems) to manage the administrative requirements associated with the Corporate PPA, which should not be underestimated. This may require management of the contract to be shifted away from accounts payable (which might manage payments under a traditional electricity retail contract) to the specialist energy trading or financing divisions within the corporation.


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