Structuring and Financing Considerations for Corporate Renewable PPAs

ACORE Corporate Procurement Working Group

Corporates and industrial customers are becoming a driving force in the development of renewable energy projects. Sixty percent of the largest U.S. businesses have established goals to increase their use of renewable energy. Renewable power purchase agreements (PPAs) are one way that corporates are meeting their renewable energy goals. These PPAs can benefit corporates by allowing them to meet their sustainability and energy management goals while at the same time supporting the development and construction of additional renewable energy generation projects.

In order for corporates to satisfy their goals of using renewable energy from new projects, those projects must first be financed and constructed in traditional project finance and tax equity markets. When financing parties evaluate whether to fund a renewable energy project, they carefully scrutinize the PPA by analyzing a number of factors, including the availability of the renewable resource, the type of energy products being purchased and sold, the price (and any factors contributing to price uncertainty), the expected energy production levels, the creditworthiness of the counterparties, and the contract duration. Financing parties use these and other factors to evaluate the PPA to determine whether its revenues from the project can support the project’s operating costs as well as repayment of the loan and the desired return on investment in the project.

This article describes different types of PPAs that corporates are using to acquire renewable energy, and discusses key considerations for structuring corporate PPAs in order to meet the requirements of financing parties.