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 falling 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.
AGL recently reported it is a high-profile casualty of locking in long term high price renewable energy contracts. In February, it announced a $1.9 billion pre-tax loss relating to provisions on “onerous” long tenor contracts it made between 2006 and 2012 to support wind farms.
The point is that otherwise stable companies could come under significant financial pressure if they lock themselves into long-dated PPAs at the wrong time, and lose the ability to benefit from long-term declines in electricity prices. They may lose competitiveness due to having higher input costs than industry peers.
Energy Action provides flexibility by making it easy for business energy buyers in Australia to access the energy market on their terms. Along with information resources such as our energy advisor team and our Price Index to help you pick the right time to buy and the right contract structure for your business, our online reverse auction drives the market down to deliver the best energy price on the day.
Apart from exploring self-generation options, companies can consider progressive pricing agreements. Progressive procurement provides greater flexibility to purchase in quarterly blocks to take advantage of market price movements. For clients with a need to manage the risk of energy contracting more proactively, our progressive procurement bureau service allows them to ride the price curve down in a declining energy market, and to quickly take a measured approach when we see volatility or trends in an upward direction. Our expert advisory and energy trading staff can assist by offering quarterly market updates and recommendations on when and how much to purchase.
For on-site generation solutions, we offer solar auctions and microgrid partner services. Our tech models your optimal on-site solar system in minutes. Then we quality review your requirements with you before going to market to your preferred shortlist of qualified suppliers to bid down the price of your project or service contract. You can choose from a contract for an outright purchase, a finance offer, or a lease agreement.
To deliver your drive to Net Zero, we provide a range of auction and wholesale services to access specific solar projects on a short term basis or access even more flexible and transparent pricing via access to the wholesale certificate markets or Greenpower.