To ensure cost certainty and to meet environmental goals, corporate power purchase agreements (PPAs) have become increasingly common. In 2018, 121 corporates reportedly signed such agreements to buy 13 gigawatts (GW) of electricity directly from power generators (rather than from utilities) for a fixed period and at an agreed price.
Despite their advantages, the rise of corporate PPAs has heightened credit and operational risks for market participants. For the Project Finance International (PFI) 2020 Yearbook, S&P Global Ratings’ senior director, Trevor d’Olier Lees, and associate director, Luisina Berberian, assess why corporate PPAs may not offer credit support comparable to traditional PPAs. However, they conclude that strong corporate demand for these arrangements could provide the impetus to finding appropriate mitigants.
Berberian and d’Olier Lees write: “The renewables sector has often overcome teething problems – with market participants finding innovative ways to finance structures and to mitigate any resultant risks.”