Power Purchasing Agreement Regulation in The EU

David VanHek

Europe

The potential for corporations sourcing renewable energy in Europe is vast. However, the market is currently growing at a slower rate than it could, due to political and regulatory uncertainty. Nonetheless, with just a few enabling developments, large-scale electricity consumers transitioning to renewables could become one of the major stories of the continent in the coming years.

Thus far, most European renewable PPA activity has been in northern European countries like Norway, Sweden and Finland. Prioritising regulatory improvements in the EU will enable significant growth in large countries that have favourable business and environmental conditions. Germany, for example, has available land. France, Spain and Ireland have available land and long coastlines. They all have significant potential to host new renewables projects, coupled with large numbers of corporate headquarters – an abundance of companies motivated to change to renewables.

Finding a balance that provides a detailed and consistent set of standards whilst also promoting business action on PPAs is a challenge for policy makers. Particularly given the speed of developments in renewables. At present, there is no thorough regulatory or legal framework supporting Corporate PPAs across the EU. Without this, standardisation can only develop for certain components and growth will be slow.

Fragmentation

Presently, some countries have rules allowing Virtual / Financial PPAs – the U.K. and the Netherlands being two. In such an arrangement, a direct connection between the buyer and the seller is not required. Energy is moved through the system by grids, utilities and power traders to ensure a balance between the points of purchase and generation.

In France and Germany, onsite PPAs, in which a company partners with a generator to produce renewable electricity on their own land to power operations, are permitted. However, Sleeved / Physical / Direct PPAs where energy is produced, ‘sleeved’ through the grid, and an equivalent amount to the amount sold is consumed by the corporate off-taker, is restricted.

There are many states in which only Virtual / Financial PPAs are allowed. This ensures grid operators, utility companies and traders stay involved in the process. It maintains the eco-system, even if it is inefficient in terms of price, ensuring each party has a limited number of functions and responsibilities in a deal.

The balance between competition and pursuing the cost effectiveness that promotes projects also has challenges. To obtain the best economies of scale, suppliers and generators would like a single mega-project to service a large volume of local corporations. This would mean a better price for the conglomerate of businesses buying the energy, too. However, fear that either side could potentially use this position to exploit each other or end consumers, along with the reduction in competitiveness and security of supply concerns, means it would be unlikely to appeal to regulators.

The U.K. has Renewable Obligation Certificates (ROCs) and Renewable Energy Guarantees of Origin (REGOs). All EU Member States are required to have such a scheme. There are equivalents on the continent: France has ‘garanties d’origine’ and Germany has ‘Herkunftsnachweise’ – both translate as ‘guarantees of origin’. The systems maintain electronic registers of certificates purchased and connects them to their renewable power generation sources, to ensure that the claimed green credentials of electricity actually equals the volumes going into the grid.