SEM Chart of the Week
Corporate PPAs: signed, sealed… delivered?
Back in April of this year, following Amazon’s announcement of Ireland’s first unsubsidised corporate power purchase agreement (CPPA), we asked if this Amazon deal signalled growth in this sector or whether this would be an isolated example.
Since then, the Irish Government published the Climate Action Plan (CAP) in June, stating an ambition to meet 15% of electricity demand by renewable sources contracted by way of CPPAs. This week we also heard news that Amazon Web Services (AWS) has signed a second unsubsidised CPPA in Ireland, to purchase electricity from a proposed 23.3MW wind development in County Cork.
In this edition of SEM Chart of the Week, we revisit the Irish CPPA sector and assess whether the government’s ambition is about to become a reality.
I just called to say…
CPPAs have been a big topic of discussion over the past couple of years, with a survey performed at our March industry event showing a scepticism in how big a part these contracts would play in terms of a route to market for renewable energy projects.
The government, however, does not share this pessimistic view, having set their sights on CPPAs contributing significantly to delivering 2030 targets. The draft National Energy and Climate Plan (NECP) submitted by the Irish government to the EU at the end of 2018 set an initial 2030 target of 55% of electricity from renewables, to be supported by the RESS.
With this target now increasing to 70%, CPPAs seemingly becomes the “silver bullet” to bridge the gap, forming a key strand of the government’s economic strategy.
In total we have seen CPPA-backed renewables developments totalling 151.5MW in Ireland which is approximately 6% of the 2030 target. EirGrid’s Tomorrow Energy Scenarios (TES) projects a growth in total demand to 41.3TWh per annum by 2030 (using their Centralised Energy scenario). This means that for the 15% CAP target to be met, 6.2TWh of demand will need to be delivered by CPPAs.
Assuming the vast majority of this is most likely to be delivered by onshore wind, and using an average onshore wind capacity factor of 33%, this translates to a total of approximately 2.35GW of CPPA-supported renewables by 2030.
Here I Am (Maybe)
If the CPPA revolution is going to happen it’s going to need willing companies and the right price.
According to EirGrid’s TES, the forecast increase in demand between now and 2030 is predominantly due to the growth of large energy users (LEUs), including data centres, and it is assumed that this growth will drive the market for CPPAs.
In the chart below we compare a view of CPPAs as a percentage of the 2020 total energy requirement to the required growth of CPPA-backed renewables in 2030. It can be seen in red that the current level of CPPA at 1% will need to grow substantially to the required 15% to meet targets. A growth from 0.4TWh to 6.2TWh.
The trajectory of industrial demand provides some evidence that there will be growth in the right areas, but is there enough of an appetite?
You’ve got the future in your hand
Globally the appetite is evident, with multinational companies actively entering into CPPAs in order to bolster their green credentials. With almost two-thirds of RE100 companies (companies who have made the commitment to go 100% renewables) calling Ireland home, and given the wind potential in Ireland, why is there still scepticism in the industry?
As is often the case, the answer is in the commercials. The gap between what the corporate is willing to pay, and what is required in Ireland for renewables to become a viable investment may be a difficult obstacle to overcome.
Additionally, planning and grid access issues have seen a shortage of suitable, ‘shovel-ready’ projects and, as more onshore renewable seek connections, planning issues and community concerns could be about to become more acute.
Nevertheless, some of the blockers are starting to lift through policy changes such as the introduction of the enduring connection policy and falling costs of construction. The UK, for example, is now looking at a generation of ‘subsidy-free’ renewables in the near future.
The CAP highlights that a national policy on wind planning is about to be published – the ‘Wind Energy Guidelines’. Development plans and planning decisions across the country will need to defer to this overarching national policy.
These guidelines could unlock a future fleet of onshore wind development or, if requirements are overly restrictive, they could severely limit the number of suitable sites and increase the costs of builds. Whilst for RESS-supported projects increased costs can be reflected in bid prices, CPPA deals may be put in jeopardy if a reasonable price can’t be reached.
We await with interest the publication of these guidelines and the industry reaction.
Writings on the Wall
Some optimism should be taken, however, by the commitment in the CAP (Action 29) to develop a holistic policy approach to promote CPPAs. These policy proposals will be developed over the next year, to be finalised by Q4 2020.
Appropriate policy combined with a growing potential customer pool and strong political will could mean the CPPA ambition is realised. But not at any price.
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