Corporate renewable power purchase agreements (PPA) are starting to play a larger role in Asia Pacific’s decarbonisation efforts, says Wood Mackenzie.
A corporate renewable PPA refers to a contract between a corporate buyer and a renewable power producer to purchase electricity at a pre-agreed price and duration.
Wood Mackenzie estimates that corporate renewable PPA volumes have more than doubled to 3.8 gigawatts (GW) in 2020 compared to the previous year. This is despite project delays from labour shortages and logistic disruptions from the COVID-19 pandemic.
Wood Mackenzie senior analyst, Rishab Shrestha, said: “Corporate renewable procurement is on the rise and Asia Pacific is starting to play a bigger role with 10.9 GW of cumulative capacity procured until H1 2021.”
“Demand for renewable procurement is largely driven by ambitious decarbonisation targets set by governments and companies in the region. But more importantly, falling renewables premium and rising power tariffs in Asia Pacific are making corporate renewable PPAs more attractive.”
According to Wood Mackenzie, renewables premiums have fallen across all markets in the Asia Pacific region and are expected to be 45 per cent below power tariffs on average by 2025. Wheeling and transmission charges will offset some of these gains, but the discount is expected to remain above 30 per cent by 2025.
Currently, India, Australia and Taiwan region lead in Asia Pacific’s corporate renewable procurement market, with a cumulative procurement capacity of 5.2 GW, 3.2 GW and 1.3 GW respectively. Attractive project economics and enabling policy framework in Australia and India account for the greater corporate PPA activity in these markets.
Shrestha shared: “We expect Singapore and Japan to join the ranks in becoming leaders in corporate renewable procurement. Singapore is the most developed procurement market in Southeast Asia but has limited land availability for renewable projects. Japan’s procurement is largely limited to on-site projects, but we expect policy updates by year-end.”
Breaking down the buyer profile, industrial offtakers were the largest buyers of renewables, accounting for 57 per cent share of PPAs contracted in 2020. This is due to the high energy demand of the electronics manufacturing and mining industries.
Retail and service offtakers were the next largest group, accounting for 25.4 per cent share. Technology sector offtakers make up 16.9 per cent share, with energy procured primarily directed towards powering data centres.
“Interestingly, although RE100 memberships in Asia Pacific have increased year-on-year, only 10 per cent of the 99 member companies signed corporate PPAs in the region,” Shrestha detailed. “Most Asia Pacific headquartered RE100 companies rely on on-site installation and net-metering solar projects to power their operations using renewables.”
Asia Pacific RE100 companies account for only 22 per cent of total cumulative contracted PPA capacity share. Most companies that signed corporate PPAs in the region have not committed to RE100, as limited regulations permitting large-scale procurement of renewables in the region form a major barrier.
Large energy users, particularly companies in the manufacturing industry, would demand more policy certainty regarding procurement from offsite projects to satisfy their large energy requirement for RE100 targets to be feasible.
With ambitious carbon neutrality targets and corporate emission reduction obligations, Asia Pacific businesses are increasingly pressuring regulatory bodies to ease corporate procurement regulations towards offsite generation projects offering larger capacities.
Shrestha adds: “While challenges remain, policy, corporate ambition and economics are starting to tilt the balance towards a more conducive corporate PPA landscape for growth.”