Renewable energy corporate power purchase agreements (PPAs) now represent a major shift in the way electricity is procured by organisations. In 2017, Telstra’s first corporate PPA resulted in the successful financing of the Emerald Solar Farm in Queensland. Similar deals were closed by SunMetals, Sunshine Coast Council, and Nectar Farms. In January 2018, the University of New South Wales signed a first-of-its kind corporate PPA, enabling the university to achieve carbon neutrality. These deals are opening up the Australian corporate PPA market. Throughout 2018, further corporates will look to sign PPAs as the likes of AB in-Bev, Coles and Monash University run tender processes as offtakers.
Retailer offtake has diminished so developers will increasingly rely on corporates to underwrite projects and attract finance. Corporates are often seeking specific requirements driven by internal objectives and constraints, making corporate PPAs new negotiating territory for developers and lenders alike. “Firm” supply volumes are often sought, creating an opportunity for hybrid renewable solutions to complement solar, wind and storage with back-up grid supply from a retailer.
Aggregate group buyers or “clubs” are also emerging as we have seen with the Melbourne Renewable Energy Project grouping the likes of the City of Melbourne, Australia Post and NAB to the 80MW Crowlands Wind Farm. In late 2017 Telstra signed its second corporate PPA that linked offtakers Melbourne University, Coca-Cola Amatil and ANZ under an arrangement with Telstra as the intermediary to the first stage of the 226MW Murra Warra Wind Farm.
Lenders to renewables projects signing up with a corporate are focused on a number of key risks. These include the credit worthiness of the offtaker which may be mitigated by credit support from a parent or bank guarantee; volume and supply delivery risk, where we are seeing fixed volumes rather than minimum generation requirements procured; and termination payments or “close-out amounts” if the deal terminates early, leaving the project and the corporate exposed. “Change in law” continues to be a concern as bundled deals (for electricity and LGCs) may want rights to alternative green products without opening up the commercial deal if a new policy or scheme is introduced to replace the RET.
Electricity prices in the NEM are anticipated to stay high in the short term, making “merchant” revenue an attractive option for projects reaching commercial operations. Depending on the value of the PPA and the credit worthiness of the offtaker, lenders are still looking for a minimum 50 per cent contracted offtake to underwrite a deal. Developers with strong equity backing may consider ‘going merchant’ for the medium term, as seen in ESCO Pacific’s 2018 deal with Elliot. In December 2017, Wirsol successfully financed the first fully merchant solar deal with the Clean Energy Finance Corporation (CEFC) covering a total of 200MW across the Clermont and Wemen Solar Farms in Queensland and Victoria respectively. Although a well-contracted project remains the most attractive to lenders, with the right debt to equity ratio and a credit-worthy offtaker, we anticipate seeing more projects reach financial close with a higher merchant exposure throughout 2018.