For the past 10 years, global corporations have benefitted from renewable electricity options across many world markets. While the U.S. market has been the most open and mature to date—offering corporations long-term power purchase agreements (PPAs) in addition to traditional onsite solutions—the European market sees rapidly increasing opportunity.
That said, some companies in Europe that have set renewable procurement goals express their struggle to make progress when renewables are limited or unavailable in key operating geographies.
On the road to a solution
In many ways, Europe’s market today is where the U.S. PPA market was in 2015 – on the verge of taking over, but still requiring some convincing and education. Companies in sectors as varied as automotive manufacturing, retailer, heavy industrial, consumer goods and telecom are signing PPAs across markets including Spain, UK, Sweden, Finland, Poland, and so on. Collaborative PPA models are opening the market to smaller companies and buyers with less energy demand.
European companies have traditionally been most familiar with sourcing renewable energy via green tariffs, Guarantee of Origins (GOs), or Renewable Energy Guarantee of Origins (REGOs). Many companies may also be familiar with a direct delivery PPA structure, or DPPA.
The virtual power purchase agreement, or VPPA, model is emerging throughout Europe as a viable solution to cross-border limitations in a DPPA. VPPAs provide some advantages over DPPAs and may be used by buyers to meet a myriad of goals, even across European geographies.
How PPAs work
In a PPA, the purchasing company (offtaker) contracts directly with a project developer or owner to secure renewable energy. In a DPPA structure, the offtaker and developer share a grid that enables the physical delivery of purchased power via a 3rd party market provider, such as a utility. In a VPPA structure, the offtaker contracts directly for fixed-price renewable energy with the developer, however the offtaker does not take physical delivery of the power. The physical power is sold back onto the grid on the spot market to be used by any number of end users.
In both cases, the offtaking company usually contracts for a fixed price for power, and, typically, the associated EACs (Energy Attribute Certificates, or GOs in Europe) generated by the project. In a VPPA, the associated EACs from the project may be attributed across the company’s European load to meet environmental goals like carbon reduction or renewable electricity acquisition.
One of the advantages of the VPPA is the opportunity for companies to aggregate smaller energy loads under a single, pan-European project umbrella. In this model, the GOs or REGOs obtained from the VPPA can be allocated to aggregated European electricity consumption. For example, if a company with operations in multiple European countries executes a VPPA in Spain, the GOs from the Spanish project may be cancelled on behalf of the consumption in all countries.
As a result, corporate offtakers can go country-by-country to identify the renewable energy projects that suits them best, knowing that the EACs from the project can be applied across operational sites.
The validity of the pan-European PPA approach
Corporate offtakers may be wary of this outside-the-box VPPA approach to address pan-European environmental goals. However, leading NGOs support its validity:
- Recent GHG Protocol Scope 2 guidance from the World Resources Institute (WRI) has clarified that EACs may be purchased and used across an interconnected grid region. This means that EACs obtained from one part of the European grid may be applied elsewhere in the European grid—a standard practice in carbon reporting.
- RE100 reporting is consistent with the GHG Protocol guidance. Claims must be made in the same market where both load (location-basis) and purchase of the EACs (market-basis) occur, and Europe is treated as a single market.
Both DPPA and VPPA contracts require careful consideration, as they have risk, financial, and accounting implications. However, for those European companies that successfully navigate these issues, PPAs of both types can help them achieve their goals.
To compare side-by-side the considerations for each available structure and to learn more about the best markets for PPAs in Europe, download our European PPA Opportunity Update.
For an overview of the key differences between DPPAs and VPPAs, read our summary.
Contributed by: James Lewis, Client Development Manager, International Sales, Schneider Electric Energy & Sustainability Services