What next for the Corporate PPA market in Great Britain?

Corporate Power Purchase Agreements (cPPAs) have become a familiar feature of the GB electricity market, but they still play a relatively modest role in delivering new clean power.

cPPAs can help businesses lock in long‑term price certainty, bring forward new renewable projects without consumer subsidy and complement the Contracts for Difference (CfD) scheme. Yet in practice, only around 5GW of capacity has been built through cPPAs, compared to more than 57GW supported by CfDs.

In this article Josh Buckland, Strategy & Policy Director at EDF, looks at what’s holding the cPPA market back and what could help it grow.

Josh Buckland is Director of Strategy and Policy at EDF, leading work to shape the transition to An Electric Britain. Before joining EDF, Josh held senior positions within government and the wider energy sector.

In this article:

1. Corporate Power Purchase Agreements – what does the market look like?
2. Current barriers to a bigger cPPA market
3. Policy options to support the cPPA market
4. Wider market developments and next steps
    

What's happening right now with Corporate Power Purchase Agreements in Britain?

Corporate Power Purchase Agreements (cPPAs) – long-term supply arrangements to provide renewable electricity at a fixed wholesale price to a corporate customer – are now a relatively well-established feature of the GB electricity market. Around 5GW of new wind and solar capacity has been built off the back of these arrangements.¹

EDF has been a major participant in this emerging market. Our dedicated PPA team has in-depth expertise in bringing corporates and renewable developers together to negotiate, structure and agree new cPPAs and has arranged 28 cPPAs for major corporate clients. Our renewables development business EDF power solutions has used cPPAs to enable investment in a number of new solar and wind projects – most recently agreements with Transport for London and Network Rail are helping to facilitate the development of new solar farms in Essex (Longfield) and Norfolk (Bloy’s Grove).

But while the GB cPPA market has reached a certain level of maturity, it remains modest in size. Most corporate demand is still met by companies buying their electricity on a much shorter-term basis and the large majority of new renewable projects are built and financed off the back of the well-established government contracts for difference (CfD) scheme. To illustrate this point, combining the results of the most recent CfD auctions (AR7) with those of previous CfD auctions and bilaterally negotiated CfDs, in total over 57GW of low carbon generation has been awarded CfD contracts since 2014² – meaning that generation capacity supported via the CfD scheme is roughly 10 times larger than the amount supported by cPPAs.

A bigger cPPA market could bring a range of benefits. As well as the potential for additional clean power which does not require consumer support, a larger cPPA market could enable more companies to manage their exposure to electricity price risk. At a time when recent global developments have again highlighted the potential for market volatility and substantial energy price spikes, these benefits can be significant.  For renewable and low carbon generators, cPPAs can provide a route to market for more projects, outside the CfD scheme.

The government has recognised this, and has recently published a call for evidence, seeking views on current factors impacting on the cPPA market, and on approaches that could strengthen the market in the future.  

Within EDF we have been thinking about this topic too. In this blog we take a look at the main factors which prevent greater adoption of cPPAs, and some of the potential developments, and more promising ideas for policy interventions, which could help the cPPA market grow over time.

The existing barriers to a bigger cPPA market

Successfully negotiating a cPPA involves bringing long-term demand from a company together with supply from a new low carbon generating asset, in an arrangement which meets the needs of both parties. Barriers to a mutually satisfactory outcome therefore need to be considered from the perspective of both the corporate buyer and the low carbon generator. 

From the corporate buyer there needs to be; 

• an appetite to fix the wholesale element of a part of their future demand on a long-term basis (for some companies commercial planning horizons are necessarily too short to make long-term electricity purchase arrangements plausible),
• a price which is attractive (low) enough to give value from a long-term fix, taking account of both wholesale price forecasts and the benefits of locking-in a stable price.

Conversely for the generator; 

• the cPPA price needs to be high enough for long enough to support a positive investment decision to build out their asset,  
• the credit standing of the corporate offtaker needs to be sufficiently robust 

And for both parties the time and resource involved in negotiating an agreement, and the scope for mutually compatible target dates for building the asset and commencing delivery of the power, also need to be considered.

These factors have been identified in the government’s call for evidence, with much commentary which matches EDF’s own commercial experience.  In our view, the single largest barrier to a bigger cPPA market today is a mismatch between company and generator needs on price. While some companies are not interested in fixing in any foreseeable circumstances, for many major corporates there is genuine potential interest, but there is a gap between what the company is willing pay (taking account of forecast future wholesale prices) and the price the new low carbon generator requires to make a positive investment decision.  

What policy options are there to support the cPPA market?

With these barriers in mind, to grow the cPPA market effectively, any policy intervention needs to:

• Help make long-term cPPAs a more commercially attractive option for both companies and generators
• Address or reduce the key risks that prevent more cPPAs from being entered into

And, of course, any new policies need to be deliverable in practice, support wider policy objectives for efficient markets and minimise costs for consumers. EDF has reviewed a range of policy suggestions which have been made in this area, including from Energy UK³, against these criteria.  

a) CfD charge exemption

In our view, one of the most promising options would be providing an exemption from CfD charges (the costs of the CfD scheme which are passed on by suppliers to electricity consumers) for corporate demand which is met by a long-term cPPA. There is a clear rationale for a mechanism of this kind – such cPPAs are enabling needed new low carbon generation assets to be built without government or wider consumer support. Exemption from the CfD charge is an appropriate reward for this service and means the corporate is not “paying twice”, simultaneously through its own cPPA and through the CfD charge, to support new low carbon generation.  

We believe, with due consideration for the details, that a viable mechanism could be developed for an exemption, without material impacts on the costs of the CfD mechanism for other customers. We think the value of a CfD charge exemption would make a difference, enabling more new cPPAs, and therefore enabling more new assets to become commercially viable. 

b) Offtaker risk reduction 

Another area where regulatory intervention could support the cPPA market is in relation to offtaker related credit and volume risks. Some European countries, including France, have already introduced government backed schemes to help reduce cPPA offtaker risks.  We think there is clear scope for something similar in Great Britain to support the cPPA market.  As well as expanding the range of corporate buyers with whom deals could be struck, lowering credit related risks can reduce the cost of capital for new generation developments, and thus could help lower the required PPA price needed to support new investment.  

c) cPPA-CfD interactions

Finally on the policy front, a number of suggestions have been made in recent years around how cPPAs could interact more directly with the CfD scheme or CfD backed power. While it is already an option today for a developer to split a site between CfD and cPPA elements, and indeed this has been done with several major renewables developments, this effectively requires the CfD and cPPA elements of the project to be metered and traded separately and governed by the respective rules of each contract.   

It would be possible in principle to link or combine CfDs and cPPAs more directly.  This could be done in a variety of ways and the approach could be of particular interest for bespoke bilaterally negotiated CfDs for new low carbon generation.  Such a link might come through combining a cPPA with an additional term of support from a CfD. Or it could involve a CfD which provided a revenue top-up to, or revenue protection within, a cPPA - perhaps to help facilitate cPPAs for certain strategic industries or new generation assets.  This is a complex area, and one where a wide range of approaches could be considered. EDF does not have a firm position on these ideas - but we think they are worth exploring.

In time, similar kinds of changes could also be considered for the well-established renewables CfD scheme. However we should tread carefully – the success of this scheme to date has rested on its simplicity and reliability for investors – which translates directly into lower strike prices for the benefit of consumers. Any changes should aim to create a bigger cPPA market without undermining the benefits and effectiveness of the existing CfD scheme.  

No doubt other suggestions will be made, in response to the call for evidence, on how the cPPA market could be facilitated.  As it takes forward work in this area, we encourage the government to consider a range of credible interventions closely, with a view to coming forward with more specific proposals later this year in a subsequent consultation.

What's next for cPPAs and how will the wider market develop?

In the meantime, we continue to see opportunities for new cPPAs within the existing market and policy framework. Data centres represent a potential area of significant growth, with large multinational corporates seeking to meet their rising demand for power in a sustainable and commercially viable way. With some of the UK’s early renewable projects leaving the support frameworks of the Renewables Obligation and the CfD scheme in coming years, there is also a new potential emerging opportunity to use cPPAs to support the ongoing operation and life extension of these assets, without any requirement for ongoing consumer subsidy.

If these market developments can be aligned with some facilitative actions from government, along the lines of the options we suggest here, there is real scope for a flourishing cPPA market to develop over the coming years. 

FAQS

What are Corporate Power Purchase Agreements (cPPAs)?

Corporate Power Purchase Agreements (cPPAs) are long-term supply arrangements to provide renewable electricity at a fixed wholesale price to a corporate customer.

¹ PPA deal tracker
² House of Commons briefing note on the CfD scheme, plus results of AR7
³ Energy UK: Maximising the Corporate Power Purchase Agreement Market – November 2024