Corporate power purchase agreements (PPAs) reached new heights in 2023, with over 19 GW of renewable energy capacity signed across 200+ deals, according to Bloomberg NEF. Big Tech led the charge, accounting for over two-thirds of deals, driven by aggressive sustainability goals and rising energy needs for AI and advanced computing. Solar power took center stage, making up 70% of contracted capacity.
Beyond the headline growth, two critical shifts are redefining the PPA market: the move to off-balance-sheet counterparties and the diversification of offtakers. Traditionally, corporate PPAs relied on full guarantees from creditworthy parent companies. Today, more deals are being structured through unrated subsidiaries with limited or no parent backing. While this approach allows companies to offload liabilities, it creates challenges for project financing, as lenders and power producers must navigate the perception of higher credit risks.
This shift has catalyzed demand for credit-enhancement tools to supplement existing credit support mechanisms. These policies can serve as a backstop for revenue to ensure projects are able to make debt service payments or can cover mark-to-market damages in the event of default and contract termination. These tools can supplement or reduce traditional letters of credit (LCs), guarantees or cash collateral, in some cases replacing them entirely. The benefits are significant:
1. Expanded Offtaker Pool: Sub-investment-grade and unrated companies can now participate, increasing market diversity and enabling competitive pricing.
2. Improved Liquidity: Off-balance-sheet flexibility allows companies to redeploy capital toward growth priorities rather than tying it up in collateral.
3. Boosted Financing Confidence: Credit enhancements reassure power producers, tax equity investors, and lenders, ensuring bankability.
With the relatively low cost of these solutions compared to the opportunity cost of tying up liquidity, they are increasingly seen as essential tools for scaling corporate renewable procurement. As PPAs diversify, credit enhancement tools are poised to play an even larger role in sustaining growth.
How is your organization leveraging these evolving trends to advance its sustainability and energy goals?
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