Growing corporate interest in PPAs, coupled with the recent energy price shocks, have pushed the market to flip from a buyers market to a sellers market. PPA buyers are being forced to re-evaluate their sourcing approach to make sure that the time and effort they invest has the best chance of success. In today's PPA markets, more than ever before, full preparation prior to formal market engagement is critical – this is the key to making the process as expedient and efficient as possible.
Although PPAs still offer the potential to beat the market, based on comparisons with long-term energy price forecasts, buyers should bear in mind the following challenges and imperatives:
- The price validity of PPAs is considerably shorter. Developers are currently exposed to changing market conditions, meaning the price at which they are able to offer PPAs is changing much more often. Buyers have to be more agile and make decisions more quickly in order to secure project exclusivity, else they risk losing the project to another corporate buyer – of which there are many.
- Buyers have to be better prepared. Critical 'go or no go' topics, such as accounting implications and credit requirements, need to be squared prior to releasing a tender, to ensure that the tendering process is not held up.
- Stakeholders need to be educated. They also need to be included in the earliest stages of the discussion. Stakeholders should have an understanding of the risks and benefits of a PPA and be in a position to contribute to the decision-making process that will inform the strategy. This should all happen prior to the tender, not during, as developers become less patient and are liable to engage with other buyers and/or retract their price offers if the process loses momentum.
- Buyers have to be decisive. Buyers need to agree on the commercial strategy with senior stakeholders before they release the tender. Getting clarity on any financial 'red flags' (e.g. credit provisions) and acceptable business case thresholds will allow buyers to better evaluate which projects meet their internal price expectations and will streamline the tendering process for both the buyer and the seller.
How can PPA buyers best address these challenges?
Getting everything ready before you release a formal tender is key. First, ensure your internal stakeholders are educated about the various PPA types and pricing structures available, as well as the risks and opportunities associated with them. Any potential hurdles presented by credit provisions and accounting should be weighed up beforehand, and ways to mitigate and manage these challenges should be explored and agreed upon. Furthermore, gathering initial data around project availability, market pricing and the associated business cases across all relevant geographies will help set realistic expectations about what can be achieved during a sourcing process.
Good PPA strategies are led by data: gathering this and completing the commercial analysis before you put out a formal tender is crucial; this enables you, the buyer, to present real business cases and secure provisional approval based on known commercial thresholds or ranges.
Ultimately, being quicker and being able to act more decisively will greatly increase the probability of securing a corporate PPA in these challenging times.