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How Power Purchase Agreements (PPAs) Are Encouraging Renewable Energy Investments
- Although the renewable energy sector is steadily growing, the economy may be growing too fast to keep up with the increasing energy demands. That said, Power Purchase Agreements (PPAs) may bridge the gap and encourage green investments.
- Corporate PPAs offer companies an affordable way to switch to green power without the upfront cost. Going green boosts their brand image, positions them as a climate leader and helps reduce their carbon footprint.
- PPAs also benefit the power provider by securing long-term funding for renewable energy projects, building corporate partnerships and developing positive public relationships.
- The renewable energy sector may increase due to PPAs, which make clean power more accessible to corporations. With long-term funding, new projects will come to completion quicker, and capacity will increase. These predictions will help the renewable market lower emissions and reach the necessary climate goals to reduce the effects of climate change.
. . . the International Energy Agency (IEA)…predicts the sector will account for 70% of 2021 spending allocation.
Investments in the renewable power sector have been growing yearly. In a report on world energy investment, the International Energy Agency (IEA) summarized that investments in renewables dominate new power generation. It predicts the sector will account for 70% of 2021 spending allocation.
As the IEA outlined in its roadmap to net-zero by 2050, clean energy is the key to stabilizing the global temperature at 1.5C; and investments are vital to achieving this. The addition of Power Purchase Agreements (PPAs) may boost funding in the industry to make renewable energy accessible to more communities and organizations.
This article explores the power behind these corporate agreements, who they benefit and how the agreements affect renewable energy investments.
What is a Power Purchase Agreement?
New projects have strict guidelines with long-term agreements of 10+ years to guarantee funding for the construction of the new site.
Corporate Power Purchase Agreements offer companies a way to reduce their carbon footprint, lower their energy bills, and support the transition to a cleaner economy. PPAs are often more affordable than purchasing individual renewable energy systems, such as solar panels, as there is no upfront cost.
The corporate buyer and power production provider agree on the price and duration of the agreement. These details will depend on where the power comes from and whether it’s an existing renewable energy project or a new build. New projects have strict guidelines with long-term agreements of 10+ years to guarantee funding for the construction of the new site. Short-term PPAs are available for pre-existing assets, and these may be less than a year. Corporate PPAs are flexible with various pricing structures to meet different needs.
What are the Benefits of a Power Purchase Agreement?
. . . switching to renewable energy through a PPA shows a commitment to going green.
There are many reasons to consider signing a PPA as it benefits the corporate buyer and developer, from safeguarding future costs and projects to raising brand awareness.
The following are some of the ways corporate buyers benefit from PPAs:
- Competitive Cost
With no upfront cost, PPAs are an affordable way to switch to clean energy. A pre-approved plan and fixed electricity prices mean companies are confident of future energy affordability. Moreover, as they purchase the power from an external provider, buyers don’t need to pay operation or maintenance costs; any risks sit with developers.
- Public Appearance
Many of these agreements may span the length of a decade; therefore, switching to renewable energy through a PPA shows a commitment to going green. The industry will recognize the corporation for its efforts to reduce its carbon footprint.
- Sustainability & Leadership
PPAs are a practical step towards sustainability, and companies need to set an example for the industry. Corporate buyers will showcase climate leadership, leading the initiative for companies to take responsibility for their emissions. Signing a power agreement contributes to a sustainable future and helps the economy reach its climate goals.
The following are some of the ways that a purchase power provider will benefit from PPAs:
- Secure Project Funding
PPAs are excellent for power providers as they secure funding for renewable energy projects. Particularly in the case of new build projects, PPAs will speed up construction as they have financing security through long-term investments. Multiple-buyer PPAs provide a means to diversify income, safeguarding energy projects from payment defaults.
- Public Relationships
Partnering with like-minded corporate buyers can boost their brand image, along with their involvement in sustainable energy systems. Positive PR can have an impact on stocks, strengthening the industry and growth of renewable energy.
- Corporate Relationships
Secure funding is critical to keep clean energy projects running. Therefore, building strong partnerships with corporate buyers can enhance the investment pipeline, widening opportunities for future PPAs.
How are PPAs Boosting Green Energy Investments?
These agreements widen the scope for investors and attempt to address the high cost of installation.
It’s not just the buyer and developer that benefits from PPAs; the entire industry reaps the rewards. Over the years, the cost of renewable power has decreased, specifically solar energy. Solar prices have fallen by 82% in the last decade alone due to increased demand and a push for clean resources.
Despite these price reductions, some green energy equipment requires a considerable upfront cost. In Canada, the average cost of solar power is $3.01/watt, which may set you back $22,500 for a 7.5kW system. These figures will vary depending between the provinces and the size of the system required. Corporate PPAs are a way to avoid these substantial price tags and provide a sustainable and affordable way to switch to green energy.
These agreements widen the scope for investors and attempt to address the high cost of installation. Alongside making solar even more affordable, the long-term funding from PPAs speeds up the development of clean energy projects. The more agreements secured, the easier and faster the industry will grow.
Between making power more accessible and speeding up project development, renewable power capacity is set to grow. Authors of a PPA market report highlighted that under the currency policies, the market can drive an additional 55-85 gigawatts (GW) of solar and wind capacity in the United States by 2030.
Renewable energy costs have declined in recent years, but the economy is growing at a substantial rate. In fact, the renewable market may not keep up with energy demands without further policy incentives. That said, with the addition of PPAs, renewable energy investments should grow; due to the focus on sustainability, growth in the tech sector and the continued cost reduction of wind and solar. If the market continues this way, stocks will improve, making the industry a reliable investment.
PPAs make solar power more accessible, increasing industry investments. Corporate buyers benefit from no upfront cost, fixed electricity rates and a positive brand image. Likewise, the power provider secures long-term investment, supercharging clean energy projects and increasing capacity. In all, PPAs may be the missing link to keep the market growing and keep up with the rising energy demands.
Frequently Asked Questions (FAQs)
Are renewable energy investments profitable?
Investing in the clean energy market is essential to grow the industry and meet climate goals. The sector is almost guaranteed to succeed and grow over the next decade as the world desperately works towards a clean future. For instance, the Government of Canada has put plans in place to transition away from coal-fired plants and make the transport sector greener.
There are many reasons to invest in renewable energy, including sustainability trends, growing investments, increased demand and affordability. What’s more, as the industry grows, so do technological advancements. For example, one limiting factor for solar power is disposing of solar batteries; however, experts are continuously working to improve this to make solar even safer than it already is. Over the decades, solar has grown exponentially. A report by the IEA highlighted that a dollar spent on solar photovoltaic (PV) technology today produces four times more electricity than a dollar spent on it ten years ago.
What are Power Purchase Agreements (PPAs)?
Corporate PPAs offer companies an affordable way to transfer to cleaner energy, such as solar and wind. The terms of corporate agreements range from under a year to 10+ years for new projects. With a smaller upfront cost and fixed rates, it’s a win-win for buyers and providers.
How do PPAs encourage renewable energy investment?
Power Purchase Agreements guarantee long-term investment for green projects, speeding up construction and increasing capacity. Having secure funding safeguards the future of clean energy projects, making them a safer investment. Without the upfront cost, more companies are considering investing in renewable energy, which helps increase wind and solar capacity and reduce emissions.
What are the benefits of a PPA?
There are many benefits for the provider and buyer. Both will benefit from a positive brand image as they contribute to the transition to sustainable resources. PPAs show the consumers what plans are in place to reduce corporate carbon footprint. What’s more, fixed electricity prices for buyers mean future energy prices remain affordable. The power provider also has a guaranteed income stream to fund the project, speed up construction on new sites, and grow the industry.
What role will clean energy play in the future?
Clean energy is the primary way to reduce emissions from coal, oil and gas. While Canada has a significant hydropower industry, the oil and gas sector is still rising, reducing efforts for a cleaner future. Renewable power is key to phasing out nonrenewable resources and keeping the global temperatures capped at 1.5C.