The UK needs rapid deployment of capital to achieve its net zero ambitions but following the end of government support schemes including the ‘Feed in Tariff’ or the ‘Renewable Obligation’, and a limited number of contracts being awarded in ‘Contract for Difference’ auctions, projects are finding market-led alternatives to improve revenue certainty.
Consequently, CPPAs are becoming a popular option for reducing risk on revenue. CPPAs are long duration power offtake agreements often for seven to 12 years, frequently with a creditworthy offtaker such as a blue-chip corporation agreeing to buy some or all of the electricity from a site directly from a renewable energy generator. This enables the offtaker to demonstrate the sustainability of energy they use in their operations and reduces price risk for both the project owner and offtaker.
“At AlphaReal, we target CPPAs on appropriate projects” said Raza Ali, Investment Director, Renewable Infrastructure at AlphaReal. “This can include greenfield projects that don’t benefit from government support. Where possible we target indexation to further manage risk. The increasing take-up of CPPAs is an important development in achieving the UK’s net zero ambitions.”
There are different ways to structure CPPAs, but standards are starting to become adopted across the industry. An ecosystem of brokers and digital platforms is emerging to help pair generators with offtakers.
“Entering into CPPAs on appropriate projects secures predictable long-term income backed by creditworthy offtakers” added Ed Palmer, CEO and Head of Sustainability of AlphaReal. “By working with businesses committed to lowering their carbon footprint, we can help them demonstrate the sustainability of their energy while reducing the risk on revenue from our renewable energy investments.”
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