Author: James Lewis is an expert in international markets for renewables, with an emphasis on emerging markets in India.
Comparing corporate power purchase agreements (PPAs) in emerging global energy markets to opportunities in the United States is like comparing apples and oranges.
Global energy markets have significant differentiators from U.S. markets that can benefit corporate energy buyers and will broaden opportunity for new entrants to engage in long-term renewable energy purchasing. U.S.-based corporates who have been hesitant to make international commitments may be enticed to shift their mindset about PPAs and take a second look at what the renewable energy industry outside the U.S. has to offer. Three elements distinct to non-U.S. markets that corporates should take into account when considering PPAs as a part of their global energy strategy are:
1. Lower Load Requirements
Typically, C&I offsite PPA deals signed in the U.S. range between 20 MW to 200 MW or more (solar PPAs can be smaller). It is possible to sign smaller PPAs in some markets abroad, whereas, there is a much higher load threshold that the offtaker must satisfy in order to transact a PPA in the U.S. Of the variety of factors that contribute to contracted capacity requirements, the ability to aggregate PPA offtakers is the most important to consider. U.S. PPA deals almost always involve one large offtaker, but international project developers tend to be more inclined to aggregate multiple offtakers who purchase smaller portions of the same project.
The high electricity load requirement in the U.S. disqualifies organizations with smaller usage from engaging in PPAs. PPAs in global energy markets, however, loads do not have to be large. PPAs become possible with electricity loads as low as 1 MW. This lower load requirement opens the door for many organizations with multinational operations to engage in this advanced energy procurement tactic and take advantage of the benefits signing a PPA brings, such as stable electricity costs and the opportunity to contribute new renewable energy to the grid.
2. More Flexible Contract Structures
Non-U.S. renewable energy developers largely have a different attitude towards contract terms than developers in the U.S. For example, American developers take a strong stance on preventing project offtakers from terminating their agreement before the end of the contract term. Developers in India and Mexico, on the other hand, are generally more negotiable in regards to exit clauses.
Due to rapidly growing demand for clean energy, international developers have greater confidence that they will be able secure a new offtaker in the case that one falls through. This enhanced negotiability with contract terms means that, in terms of risk when signing a PPA, global energy markets may be more forgiving.
3. Virtual Energy Banking
In addition to more flexible contract structures, certain markets provide mechanisms to overcome the need to ‘shape’ an off-site PPA to ensure electricity consumption and intermittent renewable energy production are matched effectively. While entirely possible, this need to shape does lend another level of complexity to certain PPA transactions.
Avoiding this hurdle has obvious benefits. In both India and Mexico, as examples, current PPA structures offer the ability to ‘bank’ energy with the utility company, which then provides it on an as-needed basis to the end consumer via the PPA contract: effectively a virtual net metering option at a large scale. In Mexico, the opportunity to capture this benefit is particularly immediate and time-limited.
The bottom line is: PPAs executed in the U.S. are different than PPAs emerging in international spaces. Preconceptions about domestic power purchase agreements contracts should not necessarily be translated to conversations surrounding clean energy solutions in global energy markets. Reach out to our team of experts to explore how your company can meet sustainability goals with products sourced from around the world.
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