Long-term power purchase agreements in Australia are helping large-scale energy consumers reduce costs and green their energy supply, but for smaller or more conservative businesses that have found the PPA landscape hard to navigate ERM Power is introducing a more flexible, short-term option to the market.
ERM Power will tomorrow ask for expressions of interest from solar and wind project developers in New South Wales and Victoria for offtake agreements of 10 MW or more, to provide three- to five-year power-purchase agreements (PPAs) for small businesses looking to add renewables to their energy mix.
Many Australian small business and commercial customers are keen to green their energy consumption, says David Guiver, Executive General Manager of Trading at ERM Power, but have found the typical corporate PPA of 10 to 15 years daunting to negotiate, and out of step with their traditionally short-term energy contracts.
Guiver told pv magazine, “More and more customers are asking for some form of renewable energy over and above the mandatory schemes, and we’re getting an increasing number of requests.”
In response to business interest, the retailer plans to aggregate handfuls of customers eager to purchase renewables and large-scale generation certificates (LGCs) at an agreed fixed price, and match them to suitable projects. Customers can choose their level of participation in increments of 5% of each asset package.
ERM says it cannot guarantee consumers an energy price benefit, but will provide customers with estimates of energy production from each renewable asset. Guiver says, “ERM takes a position of caution when you talk about price benefits. Because you have intermittent generation, that broadly produces two commodities — a large-scale certificate and spot-price energy — it’s very hard to quantify a financial benefit in a general statement that applies to all customers.”
For solar farms, Guiver says, “revenue certainty is the key”. Large-scale, long-term PPAs have underwritten many solar and wind projects over the past two years, with companies like Westpac, Sydney Airport and Bluescope Metals having committed to up to 100% renewables for their enterprises; and energy retailers also helping to underwrite the large-scale solar boom across 2018 and 2019.
“Arguably, a lot of retailers have fulfilled their near-term strategies,” says Guiver, “so we’ve seen a trend for project developers to try to get in contact with customers directly, but that’s a different skill, and it’s complicated, and there are only so many suitable customers of that size.”
For both business customers and renewable-energy developers, ERM plans to bridge the gap, offering a PPA entry point to energy purchasers, and purchase of viable parcels of energy to developers.
Diversity of PPAs will grow the market
Simon Corbell of energy advisors Energy Estate, and former ACT Minister for the Environment and Climate Change, told pv magazine, the new short-term PPA is welcome. “It’s important that we have as much diversity in the market as possible.”
Corbell adds, “It is the case that PPAs can appear complex for businesses that haven’t previously entered into them. Many of them are bespoke in terms of contractual negotiation and offering and that can take a lot of work for a business to get their head around, so for a smaller business this type of offering could prove quite attractive.”
He also pointed to the newly opened Business Renewables Centre of Australia (BRC-A), its program of workshops, and portfolio of accessible resources dedicated to helping business and commercial enterprises understand the processes and value in long-term renewable-energy PPAs.
Dr Chris Briggs, Technical Director of the BRC-A, says, “New products to access smaller buyers are clearly what is needed to grow the PPA market in the Australian context.”
Guiver agrees that ERM Power’s short-term PPA is a good opportunity for companies to get comfortable with a new way of buying energy. “If they like the three-year deal, there’ll be a natural path to continually extend that deal, or it may give them the confidence to go into a larger, or longer-term deal.”
For solar and wind-farm developers, Corbell says the new offering provides another financing option. “Even though it’s a relatively short tenure, it will potentially help some projects to get under way.”
Guiver contends it could also help developers extend to second phases of development more quickly: “You see a lot of Stage 1 and Stage 2 projects announced, so it may suit some of the Stage 2 phases,” he says.
Although long-term renewable PPAs can deliver many businesses much lower energy prices than traditional retail contracts, Corbell says “If a business is happy with the pricing of a short-term offering and it meets their needs, that’s good as well.” He says ERM Power’s short-term PPAs are “another signal that the renewable PPA market is maturing and a greater diversity of offerings is becoming available.”