The prevailing volatility of electricity pricing is a challenge for most businesses, even though prices have dropped since the middle of 2023. The reality is, in the UK we are still well above pre-energy crisis levels.
It is no surprise, then, that interest in Power Purchase Agreements (PPAs) is growing. In short, PPAs enable business organisations to cut electricity costs by investing in clean energy. Recognising the growing appetite, the government is considering how to improve the corporate PPAs market, as part of its wider Clean Energy Superpower Mission.
For expert strategic advice on renewable energy leases and connected PPAs, contact the commercial property team at mfg Solicitors.
What is a Power Purchase Agreement?
A PPA is a long-term contract between the business and an electrical power producer (the generator), allowing businesses to secure competitively-priced electricity - without undermining their efforts towards their Net Zero targets.
Contracts are typically for between 10 and 25 years; and it is the generator who is responsible for maintaining the system throughout the lifespan of the PPA.
Both parties financially benefit from the arrangement. Even low-energy corporate users can benefit from a PPA as a cost-effective way to secure their energy needs while continuing to reduce their carbon footprint.
PPAs also provide much-needed certainty in an otherwise uncertain and volatile economic climate.
Consultation
The Department for Business and Trade (DBT) and the Department for Energy Security and Net Zero (DESNZ) recently consulted on various types of PPAs. This closed in March and we are now awaiting the government’s response and next steps.
We do know that the government is considering different forms of Corporate Power Purchase Agreements (CPPAs) – where the buyer is a business seeking to buy 100% renewable energy. A CPPA can be:
- ‘Sleeved’ PPAs - where the electricity will be transmitted to the buyer via a third party
- ‘On-site’ – a physical PPA where the generator instals a solar PV system on site. Businesses considering will need to factor in the initial cost of capital investment, such as the installation of solar panels
- ‘Virtual’ PPAs – essentially a financial hedging contract rather than a contract for the supply of energy
Also under consideration is a Utility Power Purchase Agreements (UPPA) – where the buyer would be a utility, supplier or electricity trader.
How we can help
It is increasingly likely that a PPA will be expected as part of future renewable energy leases, so now is the time to find out how you can benefit from these agreements. This is a complex and emerging area, and it is important to seek expert advice from specialist commercial property solicitors as early as possible.
Expertise and care will be necessary in the complex drafting, reviewing and negotiation of the contractual arrangements necessary to protect your interests.
Contact us
For specialist advice from experienced commercial property solicitors, please get in touch with Phil Hutsby-Hunt, a Legal Director in the team on 0121 2367388; or email him at phil.hutsby-hunt@mfgsolicitors.com