Can corporate Power Purchase Agreements work in Ireland?
Ireland is home to more than 60% of the RE100 companies1 which includes major data centre owners, large multinational pharmaceutical producers, and manufacturing entities with significant electricity usage.
To date in Ireland there have been very few direct corporate PPAs, and unless some commercial and regulatory barriers are addressed this is set to continue. Investment by corporate partners in building renewable energy projects will directly offset the cost to Irish consumers to meet 2030 renewable energy targets. With simple measures Ireland can have an active corporate PPA market alongside the more traditional state incentives offered to renewable energy projects.
Recently in some European countries, we have seen a move towards companies buying renewable electricity directly from generators in what are termed corporate Power Purchase Agreements (PPAs), but could this happen in Ireland, and if so what barriers need to be overcome to make this happen?
Globally, large multinational companies are actively entering into corporate PPAs to help meet their Environmental, Social and Governance (ESG) goals. Ireland is home to more than 60% of the RE100 companies2 which includes major data centre owners, large multinational pharmaceutical producers, and manufacturing entities with significant electricity usage.
To date in Ireland there have been very few direct corporate PPAs, and unless some commercial and regulatory barriers are addressed this is set to continue. Ireland can have an active corporate PPA market alongside the more traditional supports offered to renewable energy projects. Corporate offtake partners supporting the building of renewable energy projects will directly offset the cost to Irish consumers to meet 2030 renewable energy targets. Corporate PPAs can offer an alternative, or indeed complementary guaranteed revenue stream with the potential to create a mutually beneficial situation for stakeholders including:
- Consumers: where the state support needed to achieve our Energy and Climate targets is reduced;
- Renewable Developers: have an alternate or complementary investment option reducing reliance on state support schemes;
- Corporates: can demonstrate true ‘additionality’ in delivering new renewable energy projects to meet their CSR objective and ESG goals and make positive contributions to decarbonising Ireland’s electricity generation industry.
Even though wind energy provided over 30% of the electricity generated in Ireland in 2018 there are still many barriers for renewable energy to overcome as we fully decarbonise our energy system. While Ireland has a renewable electricity potential that is the envy of many, globally there are many differences in the commercial arrangements for renewable energy, including the availability of tax incentives or renewable certificates which help explain why Ireland has been left behind in delivering corporate PPAs. In Ireland there is still a commercial gap between what corporates are prepared to pay and what is required by renewable generators to form a viable investment. There are a number of policy levers that could address this situation including;
- Stacking of revenue streams such as Guarantees of Origin (GoO) and corporate PPAs with state support schemes. (e.g. in Sweden and Norway, renewable generators stack revenues from corporate PPAs and state sponsored renewable electricity certificates giving renewable generators a cumulative revenue that is commercially viable).
- Government sponsored backstop prices that allow corporate partners to exit PPAs in a low commodity price environment thus removing a major risk to corporates.
- Government guarantees or government-supported credit insurance for smaller corporate offtakers to reduce credit risk for renewable electricity project lenders and investors.
- Levy exemptions for offtakers that are adding new renewable electricity without state support.
- Tax incentives to either renewable generators or corporate offtakers that are adding new renewable electricity without state support.
- Optimised planning guidelines allowing construction of the most efficient plant. These projects have lower costs of energy and therefore a smaller ‘commercial gap’ to what corporate offtakers can pay.
- Reduce level of local authority rates for the generator supplying a corporate offtaker.
Currently there are also a number of Regulatory barriers that restrict the potential for corporate PPAs in Ireland
- Under the current REFIT support scheme, generators are not able to cancel or transfer Guarantees of Origin (GoOs) to corporate PPA offtakers, preventing those offtakers being able to satisfy their Greenhouse Gas Scope 2 reporting requirements to the necessary level of transparency to claim their use of green electricity. The SEMO systems that are used in I-SEM have the functionality to cancel GoOs against specific customers, and a positive policy decision is now needed to allow this to take place;
- The use of private wire generation for large industrial users is prevalent in many other countries such as Germany. In Ireland however, there are regulatory barriers preventing the use of private wire generation. This could be addressed through amendments to the Electricity Regulation Act 1999 Article 37 “Direct Lines”.
With these simple measures Ireland can have an active corporate PPA market alongside the more traditional supports offered to renewable energy projects, thus allowing corporate electricity users an opportunity to positively contribute to Ireland’s decarbonisation journey.
About Brendan Heneghan:
Brendan is a Chartered Mechanical Engineer and has worked exclusively in renewable energy since 2003 when he joined the wind energy section of ESBI, having previously worked for CRH across various group companies and countries. In 2006 he joined Ionic Consulting (formerly Wind Prospect Ireland) where he has held a number of project management, technical, and managerial roles and is currently Operations Director. Ionic Consulting have been the leading provider of renewable energy technical consultancy services in Ireland (both ROI and NI) for more than a decade with an unrivalled track record and broad client portfolio providing technical support services across the full range of project management and engineering requirements. Ionic has successfully constructed over 1.5GW of renewable energy projects including more than 90 wind farms in Ireland on behalf of a wide range of Clients, and has offices in Dublin, Kerry and Edinburgh. Brendan is also a Director of the Irish Wind Energy Association and was its interim CEO during 2016.