3 Trends in Renewable Energy Investment: Marketing for Informed Decision Making Around PPAs
"In today's world, investment in renewables is more than just a financial decision; it's an investment in our future. With the right information, we can make a sustainable impact."
— Jane Smith, CEO, Sustainable Energy Investments Inc.
Power Purchase Agreements (PPAs) are on the rise in Europe.
With the decrease in subsidy levels, and more companies setting increasingly stringent internal sustainability targets, their role as a vital instrument in enabling companies to achieve the 2050 net-zero energy target and contribute to the energy transition is only going to become more prominent.
Whether you're a corporation looking to purchase a PPA or a renewable energy project dealing in PPAs, read on for how marketing has a role in supporting PPAs in the renewable energy sector and can help mitigate various risks associated with these agreements to keep the energy transition to renewables on track.
Basic Principles: What is a PPA?
If the concept of a Power Purchase Agreement is new to you, here's our team's quick explainer.
A PPA is a long-term contract under which a business agrees to purchase electricity directly from a renewable energy generator. Power Purchase Agreements provide financial certainty to the business and the project developer, which removes a significant roadblock to building new renewable facilities. The customer can also receive guarantees of origin (where available).
In the renewable energy market, PPAs serve as a critical instrument for both sellers and buyers. Sellers operating merchant renewable assets use PPAs to mitigate price risk, while buyers, such as utilities and corporates, rely on them to secure green energy for their operations and sustainability targets.
As of October 2023, 30.9 gigawatts of renewable power had been contracted through corporate purchase agreements in Europe. Spain was the country that registered the largest contracted capacity, with some 7.3 gigawatts. Sweden followed with 4.1 gigawatts of renewable power contracted through PPAs.
But the types of PPAs - and trends in how they're being used are evolving as the market grows.
Let's look at what's going on with PPAs in renewables and how renewable energy marketing can help stakeholders navigate these changes.
Trend One: PPAs for Corporates on the Up
Across Europe, the number of PPAs increased by 4.5% in 2022, according to the European PPA Market Outlook 2023 conducted by Pexapark.
Within this, however, the number of corporate PPAs increased by a staggering 29%, with corporate disclosed contracted volumes increasing by 20.7% last year to 7GW from 5.8GW in 2021.
Why are corporate PPAs increasing?
Firstly, one of the most accessible pathways for many companies to start implementing their Corporate Social Responsibility (CSR) targets is to shift their power sourcing towards renewable energy sources (RES).
An example is the RE100 initiative, in which over 360 companies have committed to consume 100% renewable power.
On top of this, some companies go beyond the RE100 commitments and push their suppliers to do the same. In April 2022, 213 of Apple's major manufacturing partners pledged to power all Apple production with renewable electricity across 25 countries. This snowball effect further increases corporate RES power demand - among RE100 signatory parties, in 2016, only slightly over 10% of their RES consumption was sourced through PPAs, but by 2020, that number increased to close to 30%.
It's clear that PPAs have a crucial role in supporting the expansion of the renewable energy sector.
So, how can renewable energy marketing help both sides - buyers and sellers - use PPAs with more confidence?
If you're a renewable energy company looking to secure PPAs, a strong and credible brand image in the renewable energy sector can enhance the marketability of a PPA. Effective marketing can build trust with potential partners, demonstrating your reliability and expertise.
Clear communication - and education - are vital as you approach the decision-makers in these complex B2B marketing deals. Marketing can facilitate communication and engagement between the renewable energy company and potential PPA partners by creating sales materials and running webinars, seminars, or workshops to educate potential buyers about the benefits and risks of PPAs.
Transparent communication is key. According to a Deloitte report, 81% of surveyed investors believe that transparency about risk factors is essential in their investment decisions.
"Investors want the full picture, warts and all. The more transparent we are about risks, the more they trust us."
— Emily Turner, Director of Sustainability, RenewaPower Inc.
On the buyers' side, if you're a business having secured a PPA renewable energy, marketing can amplify your commitment to sustainability through your energy choice, shout about your robust ESG - and bring others in your network into the PPA conversation.
If you want more evidence about the importance of marketing for renewables specifically, we blog about the topic here.
Trend Two: Short-term PPAs to stay and how renewable energy marketing can support stakeholders
PPAs are predicated on stability and certainty. While the electricity market is volatile, PPAs guarantee stable energy prices for an extended period.
For power consumers, certainty provides hedging against fluctuating electricity prices that can affect business models and even threaten the viability of certain industries. For power producers, a guaranteed source of income facilitates building additional renewable energy capacity – for example, new wind and solar parks – by making it easier to obtain loans and other sources of financing. Thus, PPAs add clean power to the electricity mix and displace fossil fuels.
Which brings the conversation to the tenure of PPAs.
According to Pexapark's 2023 report, price and market volatility (23% of total selected responses) is seen as the biggest risk to renewables market players now and in the near future.
Long-term PPAs are understood to be more secure since they hedge revenue streams from volatile electricity prices for longer. Consequently, lenders tend to favour them over PPAs with a shorter duration.
Yet, according to Pexapark, second to Quant analysis tools, executing short-term PPAs is deemed the most critical capability to manage risks from 2022 and beyond.
The appeal of shorter-tenured agreements is clear for smaller consumers: smaller companies are perhaps not used to long-term power contracts. Long-term agreements require off-takers to be comfortable with the associated long-term risks in a market they might not be familiar with – a step too far for some.
But why would renewables developers accept short-term PPAs? These short-tenure contracts entail higher merchant risks, which leads to higher financing costs or equity injection requirements for developers.
2023 has shown that given the uncertainty about long-term market conditions, the flexibility of short-term PPAs in responding to them and especially the attractiveness of higher pricing levels right now is a strong incentive for accepting shorter PPA maturities.
It's precisely this market volatility that led Pexapark to suggest that the popularisation of short-term PPAs would continue.
In such a fast moving sector, renewable energy marketing is crucial in communicating the risks associated with PPAs, including fluctuating energy prices and regulatory changes. This helps set realistic expectations with stakeholders and build trust between buyers and sellers of PPAs.
"Transparency is key. We need to acknowledge the risks, from market volatility to regulatory changes, and show how we're prepared to address them."
— Michael Chen, Head of Marketing, Clean Energy Innovators
Trend Three: Closer Collaboration Between Energy Producers and Consumers
Close working practices between those who produce and those who consume renewable energy is a third trend that will continue into 2024.
There are a few drivers for this increasingly close collaboration. Fewer or even no direct subsidies, and a push for corporates to hit ESG / CSR targets, means that collaboration between companies to fund new renewable energy projects is a smart move: both parties benefit from the renewable asset, as well as delivering broader environment and community stakeholder wins.
As Pexapark puts it: "Corporates could take long-term price risk, while utilities and project owners can provide the more sophisticated trading and risk services to guarantee supply."
Renewable Energy Collaboration: A Case Study
An example of this type of collaboration - born of demand and necessity - is between long-standing partners: the energy company Vattenfall and chemical company BASF.
Vattenfall and BASF have more than 15 years of shared history of successful cooperation in the power sector.
Entering into a PPA in 2021, they jointly bid on the Hollandse Kust West (HKW) offshore wind tender in the Netherlands in 2022. They won - and the completion of this successful, subsidy free, project was marked in September of this year.
"We leverage our strengths as a leading offshore wind developer and industrial player, both deeply committed to sustainability and biodiversity preservation, to develop an ecologically beneficial project," said Dr Eva Philipp, head of the Environment & Sustainability Unit at Vattenfall.
Hollandse Kust Zuid is located in the North Sea, 18-36 kilometres off the Dutch coast between Scheveningen and Zandvoort. The 139 turbines have a total capacity of 1.5 GW, making it one of the largest offshore wind farms in the world. Its annual electricity production is expected to equal the consumption of 1.5 million households and should be fully operational in 2024.
From a marketing perspective, to amplify the energy transition and encourage future investment, these case studies of successful collaboration give renewable energy marketing teams powerful real-world success stories to instil confidence in potential investors and partners. The Renewable Energy Investors Association reported that companies with a strong portfolio of successful projects are 20% more likely to attract investors.
"Our track record speaks for itself. We've delivered on our promises, and our clients have reaped the rewards of clean energy investments."
— David Martinez, CEO, CleanTech Solutions Group
The Renewables Renaissance
The global shift toward cleaner, more sustainable energy sources is unmistakable.
According to the Global Trends in Renewable Energy Investment 2021 report by BloombergNEF, global investment in renewable energy reached a staggering $303.5 billion in 2020, a testament to the sector's growth.
In the US, since 2022, The Inflation Reduction Act in the US has seen around $278bn in new clean energy investments. The bill offers tax credits directed at zero-carbon energy projects such as solar, wind and nuclear, grants for bringing renewables manufacturing to the US and consumer incentives to purchase electric cars, heat pumps and electric stoves.
The Biden administration claims that there will be twice as much wind, solar and battery storage deployment over the next seven years than if the bill was never enacted, with companies already spending twice as much on new manufacturing facilities as they were pre-IRA.
However, this surge in investment is accompanied by heightened scrutiny. Investors, corporate executives, and policymakers are no longer satisfied with vague promises and superficial commitments.
"Our shareholders want to see a commitment to sustainability that's backed by solid financial prospects. We need to know that our investments align with our values and financial goals."
— Sarah Davis, CFO, Sustainable Solutions Corp.
The role of renewable energy marketing teams
To provide decision-makers with the pertinent information they need at the right time, renewable energy marketing teams must start by understanding the unique perspectives and priorities of their target audience. Explore more on decision-making and the buyers’ journey in renewables in our recent piece on the topic here.
In such complex decisions, like renewables investments and buying or selling PPAs, you need a marketing team that understands the intricacies of the marketplace.
That's where Wildtribe steps in.
We're a specialist renewable marketing agency - and can support your efforts in getting multiple decision-makers across the line for your company.
Learn more about our work in marketing for the renewable energy sector, or come and chat to us about your renewable energy business and its unique challenges - or about how marketing can move the needle for you.
Reach out to Andy at: email@example.com