Energy Transition Handbook - Flipbook - Page 49
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Hogan Lovells
Energy Transition Handbook 2022
Green corporate PPAs
Demand side response
A green power purchase agreement (PPA) or electricity supply agreement (ESA) allows
Demand side response (DSR) refers to the increase or decrease of power consumption
in response to price or regulatory signals. It broadens the toolkit available to network
system operators by allowing them to modulate electricity demand as well as electricity
supply to balance the network.
renewable generating assets and evidences a corporate’s integrity and commitment to
the environment.
A number of different approaches can be used
to document a green PPA or ESA. These include
“sleeved”, “back-to-back”, “tripartite”, “virtual”,
“synthetic” or “guaranteed price” agreements
with the structure typically determined by the
corporate off-taker’s objectives and the identity
of the renewable generator and licensed supplier
involved in the transaction.
In negotiating a green PPA or ESA,
•
•
•
successfully navigating the regulatory
framework to ensure that the corporate
off- taker does not engage in licensable
activities (such as the supply of electricity)
without a licence
creating a robust nexus between the corporate
off-taker, the renewable generator and the
green attributes that attach to the renewable
power, to defend against allegations of
“greenwashing” in the structure
ensuring that the corporate off-taker will have
an uninterrupted source of power at each of its
consumption sites for a reasonable cost
•
settling the tariff, allocating the financial value
of the green attributes between the parties and
preserving any required flexibility to forward
trade or hedge the wholesale power price
•
future proofing the agreement against change,
by allowing for changes to the demand curve
to accommodate changes to the corporate
off-taker’s footprint or power consumption
over the term and by providing for the impact
of changes to the green attributes attaching to
the renewable power
Case study
Hogan Lovells advised Mars on a 10 year energy
supply agreement to purchase green electricity
from Eneco’s new 20-turbine Moy Wind Farm,
located south of Inverness in the Scottish
Highlands. The Moy Wind Farm is owned
and operated by Eneco UK and will generate
the equivalent of 100% of the electricity required
to power all 12 Mars UK sites. The transaction
marked the latest step on Mars’ journey towards
making its global operations fully carbon-neutral
by 2040. The Moy Wind Farm has an export
capacity of 60 MW and an annual production
of over 125,000 megawatt-hours. The power
generated is equal to that used by 34,000 average
UK households.
‘Extensive industry knowledge
Legal500 EMEA, 2022 (Energy)
DSR is an important tool to help ensure a secure,
sustainable and affordable electricity system
by softening peaks in demand and filling in the
troughs, especially at times when power is more
abundant, affordable and clean.
It is increasingly importance in a multi-directional
energy system where power no longer simply flows
from large generation plants onto the high-voltage
transmission network, through the distribution
network and to consumer. In mature economies,
electricity markets are increasingly flexible with
significant electricity demand being met directly
by distribution network connected renewables or
behind the meter generation and energy storage.
To be effective, DSR relies on price or regulatory
signals incentivising behaviours that contribute to
system efficiency, lowest cost and lowest carbon
footprint. In many markets, system cost allocation
was not designed for the operation of the current
more agile electricity system. That has led to
opportunities for arbitraging and avoiding system
costs, for example, by load shedding at times of
system peak. This has led to calls for system cost
allocation reform.
For business and consumers, DSR is a smart way
to save on total energy costs and reduce their
carbon footprint. DSR enables businesses to save
on use of system costs as well as generate income
by reducing or shifting consumption or switching
to on-site generation when asked to do so by the
DSR partner and/or system operator. It can also
involve increasing consumption at times when the
system has too much capacity. There are various
ways for businesses and consumers to participate,
from flexing operational processes to utilising onsite generation or battery storage.
Historically only available to the largest energy
players, DSR is now opening up to business
consumers and small generators with the role-out
of smart meters and smart devices is making DSR
easier than ever for domestic consumers.
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