Turning Crisis Into an Opportunity: Driving Europe’s Green Recovery through cPPAs

Although there is no magic bullet that will turn the EU carbon-free, corporate power purchase agreements (cPPAs) will play a significant role in allowing the private sector to accelerate decarbonization and address the effects COVID-19 crisis beyond direct government support.

The cPPA is described as a long-term arrangement in which a corporation agrees to buy electricity directly from an energy generator. These formal arrangements offer financial stability for the utility companies and the developers. They also eliminate a major roadblock to funding and constructing additional renewable energy facilities; thus, PPAs help brings more renewable electricity onto the system.

To materialize corporate green commitments, a cPPA based on existing or new renewable assets provides a tangible link between the action of the corporate off-taker and the sustainable change of the energy system. Despite the turmoil that power prices experienced during the past few months, cPPA activity has been ongoing during the crisis and the market has shown high resilience so far.

The multiplier effect of the economic stimulus is greatest throughout the crisis. Moreover, in the context of decarbonization, gains outweigh costs even more; every dollar expended on decarbonization would carry returns of between three and eight dollars, reducing the potential risks of climate change externalities.

This is where the cPPAs will play a critical function. Such emissions and cost reductions will motivate the private sector to decarbonize by cPPAs. Europe wants to transition from fossil fuels to renewables at an unparalleled pace. Finding cost-effective alternatives to the ensuing problem of network convergence can not be left to the regulator alone; it needs the creative capacity of all industry participants.

Europe’s Green Stimulus Packages

COVID-19 has been a litmus check of the credibility of the many industrial decarbonization announcements made prior to the outbreak of the pandemic. Now that policy-makers are turning their focus from short-term bailout to economic recovery measures, corporations and governments are increasingly raising their voices to make ‘green’ economic stimulus packages. Currently, more than 180 business leaders and European ministers have joined hands to promote low-carbon investments in their post-COVID-19 economic recovery strategies.

The EU Commission also stated that at least 25% of the €750 billion ‘Next Generation EU’ COVID-19 stimulus package would be used to promote decarbonization in relation to the €1 trillion EU Green New Deal proposed in January.

COVID-19 driven lockdowns have accomplished what no other carbon action or international climate change agreement may have wished for: global CO2 levels are expected to decrease by 8% in 2020 compared to 2019, for a total of 2 Gt. It would represent the biggest drop in emissions year-on-year ever.

Aside from emissions, COVID-19 also has a major effect on energy markets. Across Europe, electricity consumption has fallen by 10-20% and commodity prices by more than 40%, resulting in power prices rates that are 30-40% lower on average across the region. Return to pre-COVID rates is not anticipated in the short term. As a side effect, COVID-19 has culminated in a record-high share of renewables in the power mix as traditional power is forced out of the market.