With wholesale electricity prices likely to remain lower for longer, it makes sense to procure flexibly to take advantage of expected future price falls.
Corporate renewable power purchase agreements (PPAs) have become immensely popular in recent years. They have become a common way for corporates of varying size to manage their power procurement and to meet RE100 or net zero emissions targets. On the flip side, PPAs support the investment in large-scale renewable energy infrastructure that Australia needs to transition to a lower carbon future.
Since 2017, 88 renewable PPAs (excluding those made confidentially) have been signed. They directly contract more than 3.4GW of power and underpin the construction of almost 9GW of wind and solar generation. Last year alone, 26 agreements, contracting 1.6GW of renewable energy, were signed.
Beware of the risks
PPAs are complex, and several risks must be managed. In 2018, for example, we noted that while forward contracts signalled to declining wholesale electricity prices for the next three years, long-term PPAs were being offered based on the much higher prices, than prevailing.
It was a prescient warning. With renewable energy generation surging amid demand softened by mild weather and the COVID-19 pandemic, prices are in line with 10-year lows for some states and expected to remain low in the near term.