Clean Energy Corporate Power Purchase Agreements: One Size Fits All

This commentary explores the growing global trend of corporate power purchase agreements (Corporate PPAs) and how these can augment the growth of renewables as countries/jurisdictions across the globe race to decarbonize electricity generation to tackle climate change. This commentary discusses the benefits and the associated credit implications of renewable project financing using Corporate PPAs.

We expect the overarching benefits to various stakeholders in the electricity energy value chain, including electricity generators, corporates, and electricity consumers, will continue to drive growth in Corporate PPAs supporting clean energy development. Electricity generators benefit from stable cash flows and corporates from electricity cost certainty. Further, Corporate PPAs are individually negotiated agreements between producer and consumer that can bring financial discipline to the process and lower overall costs for the electricity ratepayers. Technology companies like Google, Amazon, and Microsoft continue to be the trailblazers in corporate clean energy procurements. Materials and manufacturing companies have also become fairly active in this space.

“From a credit perspective, long-term Corporate PPAs can enhance financeability of renewable projects through less stringent financial metrics required to achieve investment-grade ratings,” said Jaideep Nagpal, Vice President, Project Finance, DBRS Morningstar. “However, Corporate PPAs can vary considerably and certain structural risks such as refinancing risk and basis risk, if not mitigated, could potentially constrain a rating.”