PPAs – a strategically important but underutilised component of GB’s electricity market

• DESNZ and DBT should broaden the analysis to include all types of PPA, including physical, sleeved and synthetic/virtual PPAs
• DESNZ should explore levy relief and other forms of subsidy for long-term sleeved-CPPAs, recognising that corporates using multi-year agreements are effectively hedging against wholesale electricity price volatility. Any levy relief must be balanced against the cost to consumers or taxpayers of what would be a subsidy.
• DESNZ and DBT should explore options to increase market transparency and price discovery, including measures to encourage greater use of PPA trading platforms and publication of price indices
• DESNZ should introduce policy measures to support genuine green energy procurement, including reforming the fuel mix disclosure
• DESNZ and DBT should consider a state bank-backed credit guarantee scheme, similar to the European Investment Bank pilot PPA guarantee scheme, for SMEs and energy-intensive industries to reduce counterparty credit risk. This could be similar to the European Investment Bank (EIB) pilot PPA guarantee scheme for SMEs and energy-intensive industries.
• DESNZ and DBT should work with industry and energy suppliers to seek to harmonise and standardise the structure of PPA contracts to scale adoption
• DESNZ and DBT should consider an incentive scheme to expand the CPPA market, especially for local and small-scale supply. This could include an SME PPA levy relief scheme similar to P442 and Class A licence exempt supply.
• DESNZ and DBT should work with organisations like Great British Energy to develop PPA trading platforms and enhanced (Renewable Energy Guarantees of Origin) REGOs for local energy projects
• DESNZ and DBT should develop PPA template contracts and negotiation guidance, especially for sleeved/virtual PPAs, to reduce legal complexity and procurement burdens, particularly for SMEs and public sector organisations
• DESNZ, DBT, market operators and industry should encourage transparent PPA marketplaces and anonymised benchmarking indices to improve price discovery, increase buyer confidence and provide long-term price signals for efficient capital allocation
• DESNZ and DBT should engage with corporate energy buyers to better understand the procurement and supply issues that may make them reluctant to enter into long-term PPA arrangements. DESNZ and DBT should consider the standards and best-practice procurement guidelines to inform corporate buyers.
• DESNZ and DBT should consider the issue of forward market liquidity as part of a wider reform of the CfD, including options to expand the basis of the CfD reference price beyond day-ahead. The UK government should also consider providing a synthetic forward hedge for corporates and energy supply companies by opening up the CfD scheme and potentially selling a CfD hedge financial product.

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