A corporate power purchase agreement (PPA) lets your organization secure its energy supply and add renewable attributes to its power consumption. But if you can’t find a suitable renewable energy provider locally, perhaps a cross-border PPA could be for you.
What is a cross-border PPA?
A cross-border PPA is a bilateral contract between a renewable energy producer in one country and a corporate energy offtaker in another country (or in some regions, between producers and offtakers in different market zones). In principal, it works the same as any other offsite PPA structure but with the added complication of dealing with a cross-border price risk and potentially differing regulatory frameworks.
Why should I consider a cross-border PPA?
Energy buyers choose PPAs for many reasons. For some, it is about securing a long-term energy supply and fixing their long-term costs. For others, it is about demonstrably reducing their carbon emissions and contributing to the global energy transition. For yet others, PPAs provide essential green credentials to protect their brand or provide access to new business in an increasingly environmentally aware marketplace. For many, it is a combination of all three.
However, if you can’t source your renewable energy requirements locally – either because there isn’t enough renewable energy capacity or you can’t find a renewable energy partner that matches your needs – then a cross-border PPA may be your only option.
Are there any special considerations with cross-border PPAs?
A local PPA can eliminate short-term price risks by stipulating a fixed or indexed price agreed by both parties. But electricity prices are localized, and short-term price fluctuations are different in different countries or market zones. This leads to a fundamental difference between local and cross-border PPAs: a cross-border PPA alone cannot eliminate all price risks for both parties.
What does that mean for me as a buyer?
For example, transmission rights are generally not available for relevant durations. And where they are, they may not be suitable for hedging purposes. As a result, the risk due to short-term price differences between the country of production and the country of consumption will sit with the seller, the buyer or a third party. As a potential buyer, you need to ask yourself if it is better to absorb that risk yourself or pay the seller or a third party to cover it.