There is great interest in Corporate PPAs, but few have been concluded. A significant contributing factor is the procurement strategy adopted by corporations and the way generators engage with that process. Energetics has observed a wide range of approaches used by corporations when procuring corporate PPAs. Often the procurement strategy leads to frustrating and protracted negotiations, which may be abandoned mid-way.
Procurement strategy (corporate perspective): We propose to discuss with reference to deal-flow diagrams and contract models:
• the challenges facing corporations when approaching the market with vaguely defined requirements
• the risk of selecting a renewable energy project first, when the end goal is for a “firm supply” of renewable energy.
We will highlight the need for constant communication with respondents to tenders. We will also explain why projects may only provide relatively short periods of exclusivity and the impact that can have on the procurement process.
What can generators do to influence the procurement process? (generator perspective)
Highlight the key risks corporations need to manage noting that corporations often do not know which “PPA product” will best mitigate their risks. We therefore see corporates approach the market with a general “what can you offer?” request. We advise that renewable generators:
• provide explicit advice during the request for expression of interest stage (where applicable)about how engaging with different contract models will impact their offer and what the procurement process (including timelines) should be.
• avoid the common mistake of approaching the corporate market in the same way as Government auctions. It is critical to recognise that the needs / risk appetite of the corporate market is different. Failure to recognise these needs can lead to the breakdown of a deal when negotiating key terms and conditions.
3 key takeaways from this presentation:
1. To corporations: Keep the end goal in mind – renewable Energy PPA procurement strategy is not a simple “after the fact” add-on to business as usual
2. To suppliers: It is not all about price – differentiate your offer by adapting your product to take account of this market’s risk profile
3. To both: The best risk weighted outcome is often achieved through negotiation – so be prepared to be flexible.