Leveraging Power Purchase Agreements (PPAs) to Meet Your Science-Based Target
To date, over 3,000 companies are taking science-based climate action, more than 1,500 have set approved science-based targets (SBTs), and another 1,200+ have adopted the new net-zero corporate standard. Corporates across industries are increasingly using SBTs to anchor their operations to sustainability progress and ensure alignment with the Paris Agreement.
In this blog, U.S.-based Cleantech Client Development Manager, Jason Wykoff, discusses 3 key reasons why companies with an SBT should consider renewable power purchase agreements (PPAs). Then, Europe-based Renewables and Cleantech Director, Alexander Quarles, outlines 3 tips for corporates to consider when leveraging PPAs to meet an SBT.
Jason Wykoff is a Cleantech Client Development Manager at Schneider Electric. He has been working in the renewable energy industry for 15 years, helping clients structure and implement renewable energy solutions to achieve corporate sustainability, brand and economic goals.
Setting an SBT puts a company on a strict timeline to achieve specifically defined greenhouse gas emission reductions, which can be easier said than done. For most organizations, achieving a 1.5 degree scenario necessitates a scalable renewable electricity solution. While there are a growing number of ways to procure renewable electricity around the world, PPAs are at the focus of attention for many SBT signatories.
Here are my top 3 reasons why a PPA is a key tool that corporates consider when setting and achieving their SBTs:
1. PPAs are accessible
Depending on factors such as company profile, electricity consumption, and goals, there are a range of renewable energy solutions readily available to explore. Many mature project developers are already comfortable transacting with corporate offtakers, and as more deals are executed, appetite for corporate transactions increases. There are a range of PPA structures available for corporates to explore, including increased opportunities for smaller offtakers to sign PPAs. This can be done via organized engagement and aggregation programs, such as the Energize pharmaceutical supply chain decarbonization program.
2. PPAs are scalable and flexible
A particularly attractive characteristic of PPAs is their scalability and flexibility. Depending on company profile, a singular PPA can sometimes address a significant portion of an organization’s electricity load with just one transaction. With Scope 2 emissions typically representing a significant portion of a company’s GHG footprint, signing one, or multiple, PPAs can significantly accelerate progress towards targets. This becomes particularly important for organizations with large carbon footprints, such as heavy industrial players or large manufacturers. With virtual PPAs, the flexibility to apply the benefits across multiple facilities and geographical markets has also proven valuable in achieving significant GHG reductions without undue burden on a company’s real estate portfolio strategy.
3. PPAs provide additionality
Signing a PPA for a renewable project that is yet to be built provides the corporate offtaker with an additionality claim. Additionality, within renewable energy and sustainability, essentially means that the corporate offtaker has caused more renewable electricity to be added to the grid, because without their green power purchase, the wind or solar project in question would not have been built. Additionality has become a desirable and powerful claim as corporate sustainability programs evolve and third party organizations and NGOs increasingly demand it. Unlike other options, such as unbundled EAC purchasing, PPAs enable organizations to take a direct role in helping green assets get built.
Alexander Quarles is a Director of Renewables and Cleantech at Schneider Electric. He spent most of his 25-year career as WWF's expert on corporate climate leadership, advising sector-leading multinational companies on climate and energy strategy.
As Jason outlined, there are a myriad of reasons why PPAs are attractive tools to make progress on science-based targets. But embarking on a PPA journey can be overwhelming. In Europe alone, there is a broad range of markets, technologies, deals types, and so on, to explore. Executing a successful deal in any global region requires time, research and education – but can, if done correctly, can be a game changer for meeting an SBT.
Here are three expert tips for leveraging a PPA to meet your SBT:
1. Go to market to build your business case
Executing a PPA takes time – from beginning to explore the market to getting a contract signed usually takes between six to 18 months. During that process, corporates and their advisors dedicate a lot of time to evaluating different markets, technologies and projects.
However, one misconception that I often see from corporates, is the belief that they need a detailed business case for signing a PPA before going to market. This is far from true. Going to market does not mean you are automatically committing to a PPA. Information gathered during the early steps in a go-to-market strategy, such as soliciting bids from developers to match the organization’s unique profile, are crucial to build the foundation of the business case. While an initial understanding of PPAs is beneficial, we help our clients discover benefits throughout the exploration phase of the renewables journey.
2. Think about your portfolio approach
I like to show this graph to my clients, because it illustrates that if an organization is looking to address its Scope 2 emissions with renewable electricity, signing one or multiple PPAs can be a very valuable tool. Especially for heavy industrials or large manufacturers, beginning to address those emissions early in the SBT journey can help significantly accelerate progress towards a set target.
As Jason mentioned, renewable electricity developers are gaining comfort with corporate offtakers, leading to a broader range of deal structures available to corporate buyers. Thinking about your unique portfolio approach can help create a road map for how PPA opportunities fit into the overall SBT strategy and informs what types of deals to explore and when.
3. Engage your stakeholders from the start
Because of the size, duration, and potential risks of PPAs, they can be subject to scrutiny from internal stakeholders. Add IFRS accounting considerations to the mix, and you’ve got a pretty complex process that requires high-level executive buy-in. By ensuring that key stakeholders receive proper education from the outset, corporates can ease the integration of PPAs into their SBT journey. Educating stakeholders on PPAs is a process that requires ongoing, strong collaboration between a company’s sustainability champion and external experts, such as advisors and legal counsel.
One of our clients expressed it well when they said, “Two PPAs in, and we’re still learning”. Many corporates find success using the first PPA as a pilot to prove the concept internally and build on momentum to roll out subsequent processes.