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How to procure renewable energy with a corporate PPA
Corporate Power Purchase Agreements (CPPAs) are long-term contracts that large businesses can use to purchase renewable energy directly from British wind and solar farms.
CPPAs provide an opportunity to secure electricity prices for up to 25 years into the future and publicly demonstrate a commitment to green energy.
This guide explains how and why large businesses use corporate PPAs for energy procurement. Here’s what we cover:
💡 We have a separate guide explaining how Power Purchase Agreements work, providing background on how these are used in the British energy industry.
What is a corporate PPA
A corporate Power Purchase Agreement is a long-term contract through which a business buys renewable electricity directly from a wind or solar farm at an agreed price.
In contrast to a green business energy tariff, the power in a CPPA is directly attributable to a specific renewable project, rather than simply being a mix of sources backed by renewable certificates.
Why should businesses consider a corporate PPA?
There are three main reasons why large business energy customers use corporate PPAs for energy procurement.
Long-term price security
Corporate PPAs allow a business to lock in predictable wholesale business electricity prices per kWh for 10-25 years, far longer than standard energy tariffs.
Corporate PPAs protect budgets from wholesale electricity market price volatility and give CFOs long-term cost certainty.
Sustainability targets
Signing a corporate PPA supports the decarbonisation of the national grid by giving renewable developers a guaranteed revenue stream.
It also allows large businesses to operate with fewer greenhouse emissions, which improves their public Streamlined Energy and Carbon Reporting and CDP reporting.
Brand reputation
Large public companies typically announce when they have entered into corporate Power Purchase Agreements to enhance their brand reputation and build customer trust.
Nestlé, Microsoft and Amazon are recent examples of corporate giants announcing their PPAs to bolster their profile.
Business size requirements for corporate PPAs
Corporate PPAs are generally only available to organisations with high business energy consumption. Energy suppliers that facilitate off-site CPPAs need to work through admin-heavy sleeving arrangements, an effort that is typically only worthwhile for high-consuming customers.
Additionally, because corporate PPAs are long-term commitments, generators require the buyer to have a very strong credit rating to reduce the risk of non-payment.
Here are the typical minimum requirements for a corporate PPA:
- Off-site sleeved PPA – Annual power consumption exceeding 2 GWh/year
- On-site private wire PPA – 25 acres of available land and power consumption exceeding 1 GWh/year
Below, we discuss the typical alternatives that are more accessible to smaller businesses.
Green business energy tariff versus corporate PPA
In a green business energy tariff, your business energy supplier arranges the purchase of electricity from renewable sources on behalf of your business.
Green tariffs are certified by the Renewable Energy Guarantees of Origin scheme to prove that the electricity supplied is purchased from green sources. Find out more in our guide to how green business energy tariffs are delivered.
Unlike corporate PPAs, green energy tariffs are available to businesses of any size.
Solar leasing versus corporate PPA
Solar leasing agreements offer smaller businesses an alternative to on-site commercial PPAs.
Under a solar leasing agreement, a developer will install commercial solar panels on your site, allowing your business to benefit from solar energy without the upfront costs.
In exchange, your business will pay a quarterly lease payment to the developer for a period of 7 to 15 years.
In contrast to a corporate PPA, the price in a solar leasing agreement is fixed and not linked to the volume of power the commercial solar panels generate.
Aggregated corporate PPAs
An aggregated or grouped corporate PPA is a structure where multiple businesses combine their electricity demand to jointly contract with a renewable generator under a single PPA framework.
Instead of one large corporation buying all the power from a wind or solar farm, a group of smaller or medium-sized businesses each agree to take a slice of the total output.
Aggregated corporate PPAs are not yet commonly offered in the UK, but they are an emerging option as suppliers and project developers look for ways to involve smaller businesses in long-term renewable energy contracts.
Corporate PPA pricing
The price clause in a corporate PPA defines a cost per MWh of electricity purchased during the agreement, which pays for:
- The supply of electricity generated by a specific renewable energy project.
- The Renewable Energy Guarantees of Origin (REGOs) associated with the power.
This section explains the different aspects of corporate PPA pricing.
Fixed vs indexed pricing
The price per MWh of electricity purchased in a corporate PPA is typically either fixed for the entire term or indexed to an external benchmark. Here we explain both types of pricing clauses:
In a fixed-price corporate PPA, you pay a pre-agreed unit price for all electricity. For example:
In indexed pricing, the price you pay moves in line with a specified market benchmark. Examples include:
Corporate PPA price = EPEX SPOT UK Day-Ahead Hourly Price + £2/MWh
Corporate PPA price = GB Season-Ahead Forward Price − £2/MWh
Indexed corporate PPA pricing is best for businesses willing to accept market volatility in exchange for potentially lower costs, or for organisations that already actively hedge energy price risk.
We recommend choosing between fixed and variable options by considering the overall aims of your business energy procurement strategy.
Floors and caps
Floors and caps are price boundaries built into an indexed corporate PPA. They limit how high or how low the PPA price can go, even if the underlying market index moves sharply.
They are risk-management tools that protect both the corporate buyer and the generator.
Sleeving fees
In an off-site corporate PPA that uses the grid to deliver the power generated in the PPA, it is necessary to pay sleeving fees, which include:
- The cost of balancing the electricity purchased in the PPA with that consumed through your business electricity connection.
- Transmission and distribution costs associated with using the grid.
- Operating costs from your supplier, including energy meter readings.
Sleeving fees are paid through a sleeved supply agreement.
What impacts corporate PPA pricing
Corporate PPAs are bespoke long-term agreements in which the price per MWh agreed between the two parties is influenced by the following key factors:
- Delivery profile – A pay-as-generated CPPA typically offers the lowest prices, whereas baseload CPPAs (which guarantee a minimum hourly output) generally attract a higher price.
- Technology type – A wind farm CPPA typically offers lower prices than solar, as power output is more intermittent and wholesale prices generally fall on windy days due to the overall contribution from UK wind farms.
- Location – Wind farms in Scotland often suffer from curtailment, where the grid operator requires the farm to stop generating when their power overwhelms the local grid. Where curtailment is a risk, PPA prices tend to be lower.
- Contract length – Longer PPAs reduce the risk for the developer, which enables them to accept lower unit PPA prices.
- Commercial operational status – Corporate PPAs for assets in pre-construction are typically cheaper, as the buyer accepts some risk that problems may arise during construction, resulting in delays to delivery.
Types of corporate PPAs
Here’s an explanation of the three main types of corporate PPAs, based on the way power is delivered.
Off-site sleeved PPA
An off-site sleeved PPA is the standard and most popular corporate PPA model.
In this arrangement, the renewable energy asset can be located anywhere in Britain, and the power is distributed to your business using the national grid and delivered through your existing grid connection.
Using this type of PPA requires entering into a sleeved supply agreement with an energy supplier to manage the distribution of power through the grid.
Baseload versus pay-as-generated
There are two sub-types of sleeved PPA, based on the way power is delivered:
- Pay-as-generated – You purchase electricity only as and when it is generated by the renewable energy asset, depending on weather conditions.
- Baseload – You purchase a fixed, constant volume of electricity every hour, regardless of the actual power generated. The generator makes up any difference by trading on the wholesale market.
Private wire PPA
In a private wire PPA, a renewable energy developer installs solar panels or a small-scale wind farm on or near your commercial property. The power generator is directly connected to your business using a private wire, providing an alternative power source to your electricity connection.
If the generator produces more power than your business requires, you can store it using solar batteries or export it to the grid via a Smart Export Guarantee tariff.
Private wire PPAs are always settled on a pay-as-generated basis.
Virtual PPA
A virtual PPA, or financial PPA, is a type of corporate PPA where there is no physical delivery of power.
Virtual PPAs are not common in the UK, but can be used by businesses to:
- Manage electricity price risk.
- Make REGOs-only purchases from a generator instead of power and REGOs combined.
Sleeved supply agreement
Businesses that enter an off-site corporate PPA must also enter into a bespoke sleeved supply agreement with a licensed energy supplier, who arranges the delivery of the electricity purchased in the PPA through the grid.
A sleeved supply agreement is designed to integrate the PPA volumes into your electricity tariff, while ensuring a reliable supply of power, regardless of the amount of power generated under your PPA.
A sleeved supply agreement can deliver power to a single energy-intensive property or across a multi-site business energy portfolio, as long as each site is fitted with a half-hourly meter.
Here are the key elements of a business electricity bill under a sleeved supply agreement:
PPA energy component
The electricity purchased through the corporate PPA appears as a separate line item at the agreed corporate PPA price.
The PPA energy component charge is calculated as follows:
Balancing and shaping
Balancing and shaping is the process the sleeving party uses to integrate the power generated under a corporate PPA with the electricity your business actually uses, according to half-hourly meter readings.
In a sleeved supply agreement, during every half-hour period, your supplier will compare the energy generated with the energy consumed, and:
- When the generator produces more electricity than your business consumes, the supplier will sell the excess power.
- When your business consumes more electricity than the generator produces, the supplier will purchase the deficit from the market.
The balancing and shaping charge incorporates these transactions, along with the administrative fees that the supplier incurs to manage this process.
Pass-through charges
In a sleeved supply arrangement, your energy supplier will pass on the following costs that are necessary to distribute the power generated in the PPA to your business:
- TNUoS charges – The cost of using the high-voltage national grid.
- BSUoS charges – A unit cost every consumer pays to fund the balancing activities of the grid operator.
- DUoS charges – A charge for using the regional DNO and IDNO grids to deliver power to your property.
- Meter operator – The cost of operating and maintaining your business electricity meter.
- CfD and Renewable Obligation – Environmental levies used to subsidise large-scale renewables.
These charges are a combination of a unit price per kWh and business electricity standing charges.
Steps for negotiating a corporate PPA
This section outlines the key steps involved in agreeing a corporate PPA.
1. Select a sleeving supplier
Most corporate PPAs are off-site arrangements that require a licensed energy supplier to enter into a sleeved supply agreement.
Here’s a list of the best business energy suppliers offering to facilitate corporate PPAs:
- SSE Business Energy
- Scottish Power Business Energy
- Drax Business Energy
- Engie Business Energy
- Good Energy for Business
- EDF Business Energy
We recommend reviewing the corporate PPA criteria of each supplier before requesting information about sleeved supply agreements.
2. Identify renewable project options
The sleeving parties above offer CPPAs by acting as both the sleeving party and the generator, using their own portfolio of renewable assets.
Alternatively, a renewable energy developer typically seeks interest from potential PPA buyers during the initial construction phase of an asset. These developers usually host a form on their website to allow you to contact their PPA team.
3. Receive term sheets
Initial discussions will involve negotiating the key terms of the corporate PPA, including:
- Term
- Delivery type (baseload / pay-as-generated)
- Delivery volumes (expected daily power generated)
- Price per kWh delivered
- Sleeving fees (from the energy supplier)
We recommend receiving term sheets from multiple renewable energy developers to compare business electricity PPA prices, enhancing your negotiating position.
4. Due diligence
Corporate PPAs are long-term business energy contracts in which the seller bears the buyer’s credit risk, and the buyer bears the risk that the seller will deliver the generated power as promised.
Given the significant risks involved, negotiating a CPPA typically includes a due diligence process that assesses:
- The creditworthiness of the buyer
- The technical and financial feasibility of delivering the renewable energy generation asset
5. Negotiating final PPA and sleeving agreement
Following successful completion of the due diligence process, a formal PPA and sleeving agreement will be prepared.
We recommend engaging a specialist energy consultant who can act as an independent adviser to help negotiate the terms on your business’s behalf.
Once both agreements are signed, the generator can begin delivering power if it is already operational. For pre-construction projects, it may be several months before the renewable asset begins generating.
Governance and risks of corporate PPAs
Corporate PPAs are long-term, high-value strategic contracts requiring cross-functional governance.
The negotiation and approval of a corporate PPA will typically require involvement from finance, risk, procurement, legal and sustainability teams.
For these teams, it is important to be aware of the following key risks adopted by the buyer in a corporate PPA:
- Market price risk – Fixed-price CPPAs lock in a long-term rate; if market prices fall significantly, the buyer may be left with uncompetitive energy costs.
- Volume risk – Actual renewable generation may be lower or more variable than expected due to weather conditions.
- Shape mismatch – Your demand profile may not align with generation, leading to top-up costs.
- Long-term commitment – Long-term commitments reduce flexibility for operational changes, closures or relocation. Corporate PPAs usually carry high termination penalties.
- Generator underperformance – Mechanical issues, outages or poor asset management can reduce output. Construction issues may also result in delays to the Commercial Operation Date.
- Generator creditworthiness – If the generator’s business fails, the corporate PPA will collapse. This risk is particularly relevant for pre-construction projects.
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