As the planet heats up dangerously, businesses are facing mounting public pressure to use more renewable electricity to reduce their carbon footprint.
Companies can do so in a few ways. Small shops can install a few solar panels on their rooftops to keep the lights on. Some firms may be content to buy renewable energy credits.
But a growing number of corporations – the likes of Apple, Microsoft and Nike – want to enter long-term contracts directly with large-scale solar or wind farms, to secure a reliable supply of green electricity for decades to come.
Such corporate power purchase agreements (PPAs), as they are known, are held up by businesses as a key market-based enabler of renewable energy growth. Industry groups, such as the Asia Clean Energy Coalition, have been formed to lobby governments to reform power market rules and allow for corporate PPA deals.
Companies cheered this month when Vietnam, a regional manufacturing powerhouse, granted a high-level approval for corporate renewable energy PPAs, seven years after it first signalled the intention to do so.
“This is a hugely welcome step in Vietnam as the country looks to position itself as a leader in renewables in the region,” said Ollie Wilson, head of the RE100 campaign, whose members have committed to support 100 per cent renewable electricity.
What are PPAs?
In short, they are long-term power supply contracts that can be signed for over 20 years at a go. Renewable energy PPAs help buyers lock in the green electricity they need to meet their sustainability goals, while providing power producers a guarantee for future income as they go about developing or fundraising for large facilities such as solar and wind farms.
PPAs also generally involve fixed power pricing, which helps participants buffer against energy price volatility. In the common “contract for differences” deal structure, buyers top up the income of power producers in periods of low wholesale electricity prices. In return, generators provide discounts for buyers when the market electricity rates rise too high.
But the ability to forge such deals in fossil fuel-reliant Southeast Asia remains mosaicked, owing to both regulatory and technical roadblocks. Some countries only allow for deals via state-owned utility monopolies. Several also lack regulatory sweeteners, for instance permitting the sale of excess green power to the national grid.
What are the constraints in Southeast Asia?
Generally, restrictions around corporate renewable PPAs apply in instances where the renewable energy facility is located away from the end-user, requiring electricity to be sent through national or private grids.
Unfortunately, this scenario is also the one that represents the highest renewables potential, as it allows, for example, solar and wind facilities to be sited where weather is good and land is abundant, instead of where the electricity buyers are.
Off-site corporate PPAs cannot be forged in five of the 10 countries making up the Association of Southeast Asian Nations (Asean) bloc:
Graphic: Liang Lei/ Eco-Business.
Direct deals between green energy generators and end-users are most frequently hampered by the system of electricity monopoly in place in several Southeast Asian countries, where major state-owned utility companies manage the national electricity grid and supply power to residents and businesses.
Only the Philippines and Singapore have liberalised power markets. In Malaysia, Thailand and Vietnam, off-site corporate PPAs are enabled by exceptions the governments make to accelerate renewables development. Before Vietnam’s recent green-light, Thailand had last month approved a 2-gigawatt corporate PPA pilot (Thailand’s total power capacity is over 56 gigawatts). Malaysia’s scheme has an 800-megawatt quota.
“[The issue of corporate PPAs] is really quite a complex issue for regulated markets, or partially regulated markets as we see them in Southeast Asia, as compared to a free market position,” said Peter Godfrey, Asia Pacific managing director of think tank Energy Institute.
State-owned utilities have historically taken on a social agenda, Godfrey noted, pointing to their mandates for subsidies and rural grid development that often do not generate the best financial returns. The ability for these utilities to “engineer development” could be hampered by the power market liberalisation needed to enable corporate PPAs, he added.
But there could also be an element of large monopolies reluctant to relinquish the level of control they have had for decades.
“[State utilities] do not want to see the dollars, or ringgit, or rupiah, going out of their cash flow. They see corporate PPAs as potentially losing their best customers,” said Grant Hauber, analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), referring to large factories and manufacturing plants that have very large power needs.
“There are legitimate concerns over cash flow and losing big customers. But [the reluctance to change] shouldn’t be at the expense of advancing the overall energy mix and satisfying the demands of industrial customers with very strong mandates for green energy,” added Hauber, Asia strategic energy finance advisor at the think tank.
To be clear, PPAs can be signed with state utility monopolies. Indonesia’s Perusahaan Listrik Negara (PLN) uses such deals to both source power from independent green power producers and sell the output to large firms such as Amazon – in this instance via a 210-megawatt solar power deal signed in 2022. But without competition, buyers have limited negotiating power to push for PPAs that best suit their needs.
Laos, one of the region’s biggest hydropower producers, is unique in allowing independent power producers to sign electricity export PPAs, though buyers have tended to be the nationalised utilities of neighbouring states, such as Vietnam Electricity or the Electricity Generating Authority of Thailand.
Corporate PPA dealmaking has been gaining momentum where regulations permit. Malaysia’s virtual corporate PPA programme was fully subscribed last year, with participants including Australian data centre firm Airtrunk (contracting 30 megawatts) and Japanese food oils manufacturer ISF (capacity undisclosed).
In Singapore, American data centre firm Equinix signed an 18-year, 75-megawatt solar deal with local utility Sembcorp in April. Facebook has had a 100-megawatt deal with solar provider Sunseap – now EDP Renewables APAC – in place since 2022.
Corporate renewable PPA capacity rose to 26.3 gigawatts across Asia Pacific in the first half of 2023, consultancy Wood Mackenzie reported. But this is still a small fraction of the 175.6 gigawatts worldwide by that time.
Off-site corporate PPAs usually take two forms. Parties can install new private cables to transfer electricity, an arrangement typically reserved for the largest and most expensive of deals, or otherwise trade only via renewable energy certificates. In the more common latter arrangement, termed “synthetic” or “virtual” PPAs, renewable power is fed into the national grid to be shared with all users, but the buyer will own rights to claim all the resultant carbon savings.
The injection of intermittent renewables into the national grid could cause dangerous load imbalances, and may be a factor holding both regulators and the private sector back from more corporate PPA deals. In past years, countries such as China and Vietnam had to disconnect solar and wind farms from the power grid to curtail excess supply, leading to financial losses.
Hauber said such issues will eventually need to be addressed, but not immediately, as renewables penetration is still very low in Southeast Asia. Solar and wind power – the main intermittent green power sources – currently make up 9 per cent of the region’s total capacity, according to nonprofit Global Energy Monitor.
Things are easier for on-site PPAs. Generally, no governments would oppose commercial facilities leasing out rooftop space for developers to build solar panels, especially if the power produced is only used on the same premises. But such projects tend to be smaller – whereas the largest wind and ground-level solar farms can reach gigawatts in capacity, rooftop solar installations are typically counted in the single-digit megawatt range.
Still, government policies can whet or blunt investor appetite for on-site corporate PPAs.
Where excess power goes matters
A rooftop solar installation would be hard-pressed to provide all the electricity its building needs, especially at night and in cloudy weather. But there would also be regular instances of excess power, say on weekends at a quiet factory or office block.
The ability to sell excess solar power back to the grid would provide additional income for power producers, thus making them more amenable to develop more projects or sign more deals. All else being equal, rooftop solar would likely face higher generation costs than large solar farms due to the economies of scale.
“The fundamental issue is that you’ve got to create sufficient return on investment,” said Godfrey.
But the sale of rooftop power to the grid is not possible in many key Southeast Asian power markets:
Graphic: Liang Lei/ Eco-Business.
Indonesia, the largest Asean economy, had allowed the sale of excess green power from rooftops since 2018, but revoked it earlier this year – a move that observers had said would dent interest for future small-scale solar adoption.
Authorities had in parallel removed other fees for commercial users, so the brunt of the negative impacts would be felt instead by households, who never had to pay the business fees in the first place.
Other jurisdictions are trying to permit the sellback of rooftop solar power, but are facing difficulties doing so. Brunei had started trialling a “net metering” scheme since 2021, but does not appear to have moved past that stage, according to information on its energy department website. Cambodia hinted at similar measures last year.
Under net metering, businesses use advanced power meters to track how much solar power they send back to the grid, and accordingly receive discounts on their electricity bills.
Corporate PPA and net metering regulations are not the only factors dictating the pace of renewables uptake in Southeast Asia. The region is also contending with generous fossil fuel subsidies and overcapacity, high infrastructure lending rates, and the lack of a regional grid that can support more intermittent energy sources.
There are also calls for governments to step up national renewables procurement schemes, to further add to green power demand. Such schemes were what propelled Vietnam’s renewables scene to Southeast Asia’s fore in 2018, although it has now emerged that the system was not well managed and led to the lengthy regulatory delay between 2021 and 2023. Developers now point to the Philippines, which has pledged annual auctions for new renewables projects, as a new role model.
But when it comes to enabling corporate renewable PPAs, all eyes are now back on Vietnam, to see if the country can make things work.
“It’s early days here. I want to see how things start playing out,” Hauber said.
