Cross-border renewable

PPAs in Europe:
An overview for corporate buyers
December 2020
 Contents

List of acronyms | 3

Executive summary | 4

1 Introduction | 8

2 XB PPA drivers and benefits | 11

3 Differences between virtual and physical XB PPA models | 14

4 Risk considerations specific to XB PPAs | 19

5 GO treatment and affiliated renewable electricity

procurement claims | 27

6 Internal and external communications for XB PPAs | 31

7 Conclusion | 34

Annex: Process of power trading on interconnectors in Europe | 36

Cross-border renewable PPAs in Europe: An overview for corporate buyers 2

List of acronyms

AIB Association of Issuing Bodies

CDP Carbon Disclosure Project

EAC energy attribute certificate

EECS European Energy Certification System

EU ETS European Union Emissions Trading Scheme

FTR financial transmission right

GHG greenhouse gas

GO guarantee of origin

IFRS International Financial Reporting Standards

LCOE levelized cost of electricity

NGO non-governmental organization

PPA power purchase agreement

PTR physical transmission right

RED Renewable Energy Directive

SDAC single day-ahead coupling

TSO transmission system operator

WBCSD World Business Council for Sustainable Development

XB PPA cross-border power purchase agreement

Cross-border renewable PPAs in Europe: An overview for corporate buyers 3

Executive summary

Cross-border renewable PPAs in Europe: An overview for corporate buyers 4

Executive summary

Interest in corporate renewable This report examines a specific The objective of this report is to
power purchase agreements offsite PPA structure emerging in help corporate buyers understand
(PPAs) has grown exponentially the European Single Market: the the technicalities of XB PPAs by
in recent years. A corporate cross-border PPA (XB PPA). In a XB providing a balanced view of the
renewable PPA is a contract PPA, a corporate buyer purchases risks and opportunities that the XB
between the corporate buyer(s) renewable electricity (and usually PPA structure can provide.
and the power producer the accompanying guarantees of
(developer, independent power origin – GOs) generated outside the This report only addresses XB
producer, investor) to purchase electricity market2 of their electricity PPAs. Previous WBCSD reports
renewable electricity at a pre- load, via a PPA. XB PPAs can take detail the structures, benefits and
agreed price for a pre-agreed two forms: virtual/financial XB PPAs, risks that are applicable to non-
period of time.1 which are growing in popularity for XB PPAs (in-market PPAs) such
pan-European renewable electricity as Corporate Renewable Power
sourcing, and physical/direct XB Purchase Agreements: Scaling up
PPAs, of which there are currently no globally and Innovation in Power
known examples in Europe using the Purchase Agreement Structures,
definition described in this report. as does the RE-Source report
on Risk Mitigation for Corporate
Renewable PPAs.

For more information, please see previous WBCSD reports on corporate renewable PPAs: Corporate Renewable Power Purchase Agreements:
1

Scaling up globally (October 2016), Innovation in Power Purchase Agreement Structures (March 2018) and How Multi-Technology PPA Structures
Could Help Companies Reduce Risk (March 2019). These publications cover opportunities offered by corporate renewable PPAs, obstacles
faced by corporate buyers and developers, and innovations in corporate renewable PPAs that are emerging as the market grows and evolves.
Companies procure electricity at the country or electricity market (e.g. zonal) level, depending on their location. Throughout this report we use the
2

term “market” for consistency.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 5

In the virtual XB PPA model, the (market B). As the virtual XB PPA to the corporate buyer’s point of
power producer sells the generated contract is a financial settlement, consumption via the electricity
electricity in the wholesale power a physical network connection network and interconnector. As
market where the generation asset between the generation asset(s) physical XB PPAs by this definition
is located (market A). The payments and the load is not necessary. rely on electricity trading across
received by the power producer market borders on so-called
from the fluctuating wholesale In the physical XB PPA model, interconnectors, it is important
power price in market A are net- there is a physical network to understand this process to be
settled3 against the PPA price connection between the generation able to evaluate its practicality for a
agreed with the corporate buyer. asset in market A and the load physical XB PPA and to understand
The corporate buyer continues to of the corporate buyer in market why the physical XB PPA structure
purchase electricity for its facilities B. The generated electricity is – using the definition in this report –
under its local contracts in the nominated with the system and/ presents considerable uncertainty
market where the load is located or market operator for delivery and risk.
Figure 1: Virtual cross-border PPA
MARKET A MARKET MARKET B
BORDER
2 4

Renewable Retail
electricity electricity

3 4

Wholesale ELECTRICITY ELECTRICITY Retail

OFFSITE electricity GRID GRID electricity CORPORATE
RENEWABLE price payment FACILITY
ENERGY
PROJECT Virtual PPA settlement (wholesale electricity
1 Guarantees of origin
price net-settled agreed PPA price)

1 Corporate buyer and power 2 Project delivers renewable 3 Power producer receives wholesale
producer agree upon net-settled electricity to grid in market A electricity price
virtual PPA price and corporate
buyer receives GOs
4 Corporate buyer continues its retail
electricity contract with retail
provider in market B
Note on step 1: basis risk may either be allocated to the corporate buyer (if the PPA price is net-settled against the wholesale electricity price
in the market where the generation asset is located, market A) or to the power producer (if the PPA price is net-settled against the wholesale
electricity price in the market where the load is located, market B). We include more detail on the definition and allocation of basis risk in ‘Risk
considerations specific to XB PPAs‘.

Figure 2: Physical cross-border PPA

MARKET A MARKET MARKET B
BORDER

TRANSMISSION 4
LINES
2 3 3 Renewable
electricity
Renewable Renewable Renewable 5
electricity electricity electricity
ELECTRICITY ELECTRICITY Additional retail
OFFSITE GRID GRID electricity CORPORATE
RENEWABLE and payment FACILITY
ENERGY 1
PROJECT Agreed PPA price Guarantees of origin

1 Corporate buyer pays power 2 Renewable electricity 3 Capacity rights secured on

producer the agreed PPA price delivered to grid in market A interconnectors for renewable electricity
and receives GOs

4 Renewable electricity 5 Corporate buyer receives and pays for

delivered to corporate facilities additional electricity via local retail
in market B provider or a contracted third-party

3
We use the term net-settled to clarify that each party in the agreement is subject to gains or losses depending on the outcome of the
difference between the wholesale power price and the agreed upon PPA price.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 6

XB PPAs may provide corporate However, XB PPA sourcing and • Corporate buyers must
buyers with additional benefits contracting can be complex and it adhere to market boundary
compared to in-market PPAs, is important that corporate buyers guidance issued by reporting
including the ability to: fully understand the risks and bodies, in order to make
complexities before entering into a credible environmental claims
• Overcome regulatory barriers contract of this type, including but associated with a XB PPA.
in and between the markets not limited to:
where their facilities are located • There is an increased need
• Virtual XB PPAs are susceptible for a thorough and robust due
• Choose projects with the most to increased basis risk and can diligence process due to added
favorable terms irrespective trigger derivative accounting sourcing and contracting
of their location and/or use a under International Financial complexity.
multi-technology approach in Reporting Standards (IFRS)
multiple geographies where accounting treatment. Despite the complexities, as
beneficial; and renewable electricity markets
• Physical XB PPAs with cross- in Europe continue to grow and
• Aggregate electricity load in border electricity trading mature, more and more companies
several markets and streamline (as defined in this report) may favor the XB PPA model for its
electricity and GO sourcing. are significantly hindered by upsides. With a supportive enabling
the uncertainty of obtaining environment, XB PPAs have
interconnector capacity rights the potential to make a material
for the duration of the PPA and contribution to additional renewable
by the accompanying cross- electricity deployment in Europe.
border transmission price risk.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 7

1 Introduction

Cross-border renewable PPAs in Europe: An overview for corporate buyers 8

 1 Introduction

Interest in corporate This report examines a specific The reasons for growing interest
renewable power purchase offsite PPA structure emerging in in XB PPAs are manifold. XB
agreements (PPAs) has grown the European Single Market: the PPAs can offer greater flexibility
exponentially in recent years. cross-border PPA (XB PPA). In a XB to the corporate buyer, who can
Corporate renewable PPAs PPA, a corporate buyer purchases choose the most favorable project
enable corporate buyers renewable electricity (and usually conditions unrestricted by location.
to manage their electricity the accompanying GOs) generated In addition, XB PPAs are growing
costs and increase cost outside the electricity market6 of in familiarity and legitimacy in
visibility, while simultaneously their electricity load, via a PPA. XB Europe as European electricity
making progress on carbon PPAs can take two forms: virtual/ markets are becoming ever more
reduction and environmental financial XB PPAs, which are growing interconnected – physically and
goals. Cross-border PPAs in popularity for pan-European commercially7 – and Europe is
are the latest structural renewable electricity sourcing, considered a single market for
variation to emerge and and physical/direct XB PPAs, of carbon emissions under the
are fast gaining popularity which there are currently no known European Union Emissions Trading
among corporate buyers examples in Europe – using the Scheme (EU ETS).
looking to source renewable definition described in this report.
power across Europe.
A corporate renewable PPA is a
contract between the corporate
buyer(s) and the power producer
(developer, independent power
producer, investor) to purchase
renewable electricity at a pre-agreed
price for a pre-agreed period of
time.4 The contract contains the
commercial terms of the electricity
sale: contract length, point of
delivery, delivery date/times, volume,
price and product. The electricity
sold under a PPA can be from
an existing renewable electricity
supply or a new-build project. A
PPA typically also includes the sale
of the associated energy attribute
certificates (EACs), commonly
known as guarantees of origin (GOs)
in the European Single Market5.

For more information, please see previous WBCSD reports on corporate renewable PPAs: Corporate Renewable Power Purchase
4

Agreements: Scaling up globally (October 2016), Innovation in Power Purchase Agreement Structures (March 2018) and How Multi-
Technology PPA Structures Could Help Companies Reduce Risk (March 2019). These publications cover opportunities offered by corporate
renewable PPAs, obstacles faced by corporate buyers and developers, and innovations in corporate renewable PPAs that are emerging as the
market grows and evolves.
Throughout the report, we refer to European energy attribute certificates as GOs. GOs are defined in EU legislation (article 15 of the European
5

Directive 2009/28/EC) and applied in the European Single Market (EU Member States plus the European Economic Area states of Iceland,
Lichtenstein and Norway).
Companies procure electricity at the country or electricity market (e.g. zonal) level, depending on their location. Throughout this report we use
6

the term “market” for consistency.

19 European countries are currently part of the Multi-Regional Coupling (MRC) and the European Union plans to continue to add markets to
7

eventually create a single pan-European electricity market.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 9

There is also increasing interest in XB However, XB PPAs also require implications of market boundary
PPA structures at the government careful consideration as they definitions for GO treatment and
level: a 2019 publication by the inherently introduce new risks into disclosure, and the fifth chapter
European Commission on the the PPA compared to in-market PPA concludes the report with guidance
competitiveness of corporate structures. The objective of this on effective internal and external
sourcing of renewable energy report is to help corporate buyers communications for XB PPAs in
explicitly called XB PPAs “important understand the technicalities of XB Europe.
element[s] for expanding the PPAs by providing a balanced view
contribution of corporate renewable of the risks and opportunities that This report only addresses XB
energy PPAs to Europe’s energy the XB PPA structure can provide. PPAs. Previous WBCSD reports
transition…allow[ing] renewable detail the structures, benefits and
energy to be purchased from The first and second chapters of risks that are applicable to non-
where it is cheapest and delivered this report examine the drivers XB PPAs (in-market PPAs) such
to centres of consumption.” This behind XB PPAs and the differences as Corporate Renewable Power
reasoning points to additional between virtual and physical XB Purchase Agreements: Scaling up
system efficiencies, as XB PPAs PPA models. The third chapter globally and Innovation in Power
can enable renewable electricity addresses risk considerations Purchase Agreement Structures, as
generation in locations in Europe specific to XB PPAs, delving into does the RE-Source report on Risk
where it is possible to produce it the details of the importance of Mitigation for Corporate Renewable
most efficiently, meaning in markets understanding the impact of basis PPAs.
where the load factors for renewable risk on the economics of virtual
technologies such as solar or wind XB PPAs, and why cross-border
are highest. As experience develops trading rules have been prohibitive
and markets mature, XB PPAs may for physical XB PPA structures
be applicable in other geographies in Europe to date. The fourth
too, such as Asia. chapter considers the important

Cross-border renewable PPAs in Europe: An overview for corporate buyers 10

2 XB PPA drivers and benefits

Cross-border renewable PPAs in Europe: An overview for corporate buyers 11

 2 XB PPA drivers and benefits

The main drivers for corporate XB PPAs offer geographical 3. The corporate buyer can
buyers to procure electricity flexibility to the corporate buyer, extract a higher value (such as
via renewable PPAs are irrespective of the location of their lower cost, lower risk or higher
economics, sustainability, load(s), when: environmental impact) by
brand reputation and procuring renewable electricity
leadership (for more details, 1. Corporate renewable PPAs in a different market.
see WBCSD’s Corporate are not available in the market
Renewable Power Purchase where the load is located due to Table 1 describes the specific
Agreements: Scaling up the regulatory framework; benefits of XB PPAs, beyond the
globally report). The XB PPA benefits already offered by in-
2. Corporate renewable PPAs are market PPAs.
structure can offer the added available in the market where
advantage of contracting the load is located but are
a project with the most cost prohibitive or otherwise
beneficial economics – constrained; or
regardless of geography.

“Maximizing impact was our key driver for selecting a cross-border

structure – it allows us to contribute to the build-out of new solar power
plants by aggregating demand from many countries under a single PPA.”
Moritz Bernhoerster, Director Global Procurement, AB InBev

“By choosing a virtual cross-border PPA structure, we were able to combine our
electricity load across several markets and contribute to the development of additional
solar and wind capacity, which we wouldn’t have been able to do in individual countries”
Sim van der Linde, Project Director Renewable Energy, Royal DSM

Cross-border renewable PPAs in Europe: An overview for corporate buyers 12

Table 1: Potential benefits of XB PPAs for corporate buyers

Potential benefit Description

Ability to bypass regulatory Corporate buyers can source renewable electricity for their facilities
barriers in the market where the even if the regulatory framework in their local market is prohibitive.
load is located

Ability to choose projects with Corporate buyers can source renewable electricity from projects in
the most favorable terms locations with the most beneficial terms. These can relate to price, as
a higher spread between the wholesale electricity price and levelized
cost of electricity (LCOE) may enable the corporate buyer to negotiate
a proportionally lower PPA price than in their load market.* For example,
projects with high load factors (i.e., steady wind speeds or high solar
radiation resulting in a high electricity production), low labor costs and
low material costs allow for electricity production at the lowest unit cost,
giving a low LCOE for the project. This has the added system benefit
of encouraging the development of renewables in the locations best
suited to those technologies. Favorable terms may also relate to risk
management, e.g., when the corporate buyer is looking for a certain price
structure that improves the ability to manage for or hedge against risks.

Ability to use a multi-technology Corporate buyers can source renewable electricity from multiple
approach locations, using the most efficient technology for the conditions in
each location, i.e. a solar project in one market and a wind project in
another market, to form a firmer electricity generation profile that better
matches the corporate buyer’s electricity demand profile.8

Ability to aggregate electricity Corporate buyers can combine their electricity load from multiple
load from several markets and markets under the umbrella of one or more XB PPA(s). This allows
streamline electricity and GO corporate buyers to execute large-scale pan-European procurement of
sourcing renewable electricity and GOs, which it can apply across its operational
footprint. By aggregating the procurement of power and GOs from
several markets into one or more XB PPAs, it is possible to reduce
the number of overlapping contracts for electricity purchasing and
associated fees. Aggregating electricity load may also have the added
benefit of expediting the construction of new renewable electricity
projects, e.g. when the corporate buyer faces planning bottlenecks in
the market where the load is located.

Ability to supply leased facilities When using a virtual XB PPA model, the PPA can cover the total load of
with renewable electricity a corporate buyer’s facilities, including those owned or leased, and the
corporate buyer may be able to change the location of this load without
renegotiating contracts.

Improved leadership opportunity XB PPAs provide the flexibility to seek projects that can derive the most
positive environmental impact – if desired – such as those located in
more carbon-intensive electricity markets. These types of leadership
actions may align with company objectives and may positively impact a
company’s brand and reputation.

* NB: For a virtual XB PPA structure, it is necessary to weigh the economic upside against the additional cost of managing basis risk (see
‘Implications of basis risk for virtual XB PPAs’). For a physical XB PPA structure, the costs and risks of transmitting power between the markets
may negate the economic upside (see ‘Implications of cross-border power transmission for physical XB PPAs’). The next chapter provides
further explanation on the differences between virtual and physical XB PPA structures.

For further analysis of multi-technology PPAs and their impact on shape, volume and imbalance risk, see the WBCSD report How multi-
8

technology PPAs could help companies reduce risk (March 2019)

Cross-border renewable PPAs in Europe: An overview for corporate buyers 13

3 Differences between virtual and
physical XB PPA models

Cross-border renewable PPAs in Europe: An overview for corporate buyers 14

 3 Differences between virtual and
physical XB PPA models
Generally, XB PPAs can be • In the physical PPA model, there Both virtual and physical PPA
structured either as a virtual is a physical network connection structures can offer “additionality”,
or financial PPA (virtual PPA) between the generation asset where the renewable electricity
or as a direct or physical and the load of the corporate would not have been produced
PPA (physical PPA). Before buyer. The generated electricity but for the corporate renewable
evaluating these two XB is nominated with the system PPA.10 European companies may be
PPA models, here is a short and/or market operator to be most familiar with the physical PPA
reminder of in-market virtual delivered to the corporate model, since many are accustomed
and physical PPAs: buyer’s point of consumption to purchasing electricity under a
via the electricity network. This physical PPA structure, while U.S.
• In the virtual PPA model, the allows for direct delivery of power or Australia-based companies
power producer sells the from the power producer to the with European loads may be more
generated electricity into corporate buyer. The corporate familiar with the virtual PPA model,
the wholesale power market. buyer usually purchases any as this is commonly used in the U.S.
The payments received by additional power needed to and Australia.
the power producer from the serve the remainder of the load
fluctuating wholesale power via its existing retail electricity We explain the differences between
price are net-settled9 against provider or a third-party. a cross-border virtual PPA and
the PPA price agreed with the cross-border physical PPA in the
corporate buyer. The corporate For both structures, the power following two subsections.
buyer continues to purchase producer typically sells the
electricity for its facilities associated GOs alongside the
under its local contracts. As PPA to enable corporate buyers to
the virtual PPA contract is a evidence that each MWh that they
financial settlement, a physical have purchased through the project
network connection between is renewable.
the generation asset(s) and the
load is not necessary.

We use the term net-settled to clarify that each party in the agreement is subject to gains or losses depending on the outcome of the
9

difference between the wholesale power price and the agreed upon PPA price.
10
For more information on additionality, see WBCSD report Corporate Renewable Power Purchase Agreements: Scaling up globally

Cross-border renewable PPAs in Europe: An overview for corporate buyers 15

Virtual XB PPAs the corporate buyer’s facility. The as previously detailed in the IFRS
Virtual PPAs are structurally upside is that the corporate buyer accounting outline for Power
accommodating to the XB PPA does not need to alter existing retail Purchase Agreements report.
model. This is because the virtual electricity contracts in the market We provide further commentary
PPA separates two prices by design: where the load is located. However, on these two aspects in ‘Risk
(1) the wholesale electricity price virtual XB PPAs are susceptible to considerations specific to XB PPAs’.
against which the agreed PPA increased basis risk and virtual PPAs
can trigger derivative accounting Figure 1 below shows a typical virtual
price is net-settled; and (2) the XB PPA structure.
existing retail electricity contract at under IFRS accounting treatment

Figure 1: Virtual cross-border PPA

MARKET A MARKET MARKET B

BORDER
2 4

Renewable Retail
electricity electricity

3 4

Wholesale ELECTRICITY ELECTRICITY Retail

OFFSITE electricity GRID GRID electricity CORPORATE
RENEWABLE price payment FACILITY
ENERGY
PROJECT
Virtual PPA settlement (wholesale electricity 1
price net-settled agreed PPA price) Guarantees of origin

1 Corporate buyer and power 2 Project delivers renewable 3 Power producer receives wholesale
producer agree upon net-settled electricity to grid in market A electricity price
virtual PPA price and corporate
buyer receives GOs

4 Corporate buyer continues its retail

electricity contract with retail
provider in market B

Note on step 1: basis risk may either be allocated to the corporate buyer (if the PPA price is net-settled against the wholesale electricity price
in the market where the generation asset is located, market A) or to the power producer (if the PPA price is net-settled against the wholesale
electricity price in the market where the load is located, market B). We include more detail on the definition and allocation of basis risk in ‘Risk
considerations specific to XB PPAs‘.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 16

Case study: Novartis, the global medicines Choosing a virtual cross-border
Virtual cross-border PPA company, has set ambitious PPA structure was the result of
helps Novartis become sustainability targets to a trade-off analysis between
both energy and climate- be carbon neutral in its sourcing and contracting
own operations by 2025 in complexity versus flexibility and
resilient
accordance with the Science- carbon impact. One of the key
Based Targets Initiative criteria. considerations in the Novartis
Structure: Virtual cross-border
As part of this effort, in November renewable energy strategy was its
PPA
2020, Novartis announced a set fluid European footprint which is
Generation market: Spain of virtual cross-border PPAs for comprised of numerous locations
Offtake markets: Austria, more than 275 MW of renewable with different energy needs. The
Germany, Spain, France, power. With these deals, Novartis virtual cross-border PPA not only
United Kingdom, Italy, Sweden, is on track to achieve 100% allows the aggregation of demand
Romania, Switzerland, Belgium, renewable electricity in its from multiple countries but also
Slovenia, Poland, Czech European operations. provides flexibility in the event of
Republic, Ireland any changes in the size or location
One of the virtual cross-border of the company’s facilities.
Power producer: Enel Green
PPAs was signed with Enel
Power
Green Power, with support from By procuring electricity from the
Capacity: 78.5 MW Schneider Electric, through a Spanish wind project, Novartis
Technology: Wind 78.5 MW portion of the Tico is leveraging one of the highest
Tenor: 10 years wind farm in Spain. This 10-year onshore wind load factors in
deal will generate guarantees of Europe. This is in turn reflected
origin (GOs) for Novartis and the in the lower levelized cost of
associated claims will be applied energy and more cost-effective
on a pan-European basis. renewable electricity production.

Key learnings:
“This portfolio of virtual PPA deals that we have recently announced has allowed
us to make significant progress towards our carbon neutrality goals during
a period of significant business transformation activity. The flexibility offered
by utilizing the virtual cross-border PPA structure was integral in defining our
renewable energy strategy. The other important factor in the decision-making
process was the GO treatment. The clear definition of a market boundary
in Europe allows Novartis to make evidenced carbon reduction claims from
renewable electricity procured through this virtual cross-border PPA.”
Mark Scoffin, Head of Procurement – Utilities, Novartis

Cross-border renewable PPAs in Europe: An overview for corporate buyers 17

Physical XB PPAs of physical transmission rights The rules of trading power on
It is also theoretically possible to (PTRs) and financial transmission interconnectors create two main
structure XB PPAs as a physical rights (FTRs) in Europe, can find risks for physical XB PPAs, firstly
PPA. In general, physical PPAs an explanation in the Annex: obtaining interconnector capacity
are attractive for corporate Process of power trading on rights for the duration of the XB PPA
buyers because they do not interconnectors in Europe. and secondly managing the price
create derivative accounting risk that arises from the auctioning
When using an interconnector to of interconnector capacity rights
concerns under IFRS11 and physically flow electricity from one
allow for the delivery of power and from the price spread between
market to another for a physical all markets concerned. Another
via the system/market operator XB PPA, complexities arise from a
to the load location(s). Figure relevant issue is the small number of
mismatch between the purpose of true pan-European energy suppliers
2 below shows a theoretical the existing rules of cross-border
physical XB PPA structure. that would manage the delivery of
power trading on interconnectors electricity across borders to the
As physical XB PPAs by this and long-term PPAs: interconnector corporate buyer’s various facilities.
definition rely on electricity trading capacity rights (i.e. PTRs and FTRs) We provide more explanation on
across market borders on so-called are predominantly used as financial these risks in ‘Implications of cross-
interconnectors, it is important contracts to enable efficient trading border power transmission for
to understand this process to be of power over the interconnector physical XB PPAs’.
able to evaluate its practicality for and are not designed for the
a physical XB PPA. Readers who purpose of physically delivering
are not familiar with cross-border power for an individual long-term
electricity trading and the use PPA aiming for price visibility.

Figure 2: Physical cross-border PPA

MARKET A MARKET B
MARKET
BORDER

TRANSMISSION 4
LINES
2 3 3 Renewable
electricity
Renewable Renewable Renewable 5
electricity electricity electricity
ELECTRICITY ELECTRICITY Additional retail
OFFSITE GRID GRID electricity CORPORATE
RENEWABLE and payment FACILITY
ENERGY 1
PROJECT Agreed PPA price Guarantees of origin

1 Corporate buyer pays power 2 Renewable electricity 3 Capacity rights secured on

producer the agreed PPA price delivered to grid in market A interconnectors for renewable electricity
and receives GOs

4 Renewable electricity 5 Corporate buyer receives and pays for

delivered to corporate facilities additional electricity via local retail
in market B provider or a contracted third-party

Unless hedging mechanisms are deployed to manage certain risks. See further information under ‘Accounting Implications’ in ‘Sourcing and
11

contracting complexity’.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 18

4 Risk considerations specific to XB PPAs

Cross-border renewable PPAs in Europe: An overview for corporate buyers 19

 4 Risk considerations specific to XB PPAs

The drivers and potential Market and policy- However, for both XB and in-market
benefits of XB PPAs outlined related risks PPAs, it is always necessary to
at the start of this report show While it is necessary to choose
evaluate all risks for each company,
the significant upsides a XB and structure PPAs in a manner
counterparty, third-parties, lenders
PPA can offer. However, XB that provides economic and
and markets concerned. For a
PPAs equally carry specific environmental upsides to both
definition of all risks associated with
risks that corporate buyers parties, all parties should carefully
corporate renewable PPAs, refer
should fully understand scrutinize the downside risks
to Table 2 in WBCSD’s Innovation
before entering into a contract stemming from market movements
in Power Purchase Agreement
of this type. and policy changes.
Structures report.

This chapter describes market and Table 2 outlines the three risks
Three key risks affect a XB PPA in
policy-related risks and contracting that have a different impact for XB
a different manner to an in-market
complexity that specifically result PPAs and highlights the issues
PPA: basis risk, price risk and
from XB PPAs. These are in addition specific to virtual and physical XB
change in law risk. The fact that the
to the risks that in-market PPAs PPA structures respectively. As the
parties contract the PPA across
already contain and allocate implications of basis risk for virtual
different electricity markets does
between parties. XB PPAs and cross-border power
not directly impact development
transmission for physical XB PPAs
risk, performance risk, balancing
are complex and require more
risk, volume risk, profile risk and
explanation, we address these in
force majeure risk; we therefore
more detail following Table 2.
do not address them in this report.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 20

Table 2: Market and policy-related risks with particular impacts for XB PPAs

Risk What it means for Specificities for Specificities for

type XB PPAs virtual XB PPAs physical XB PPAs12
Basis A primary consideration for a Basis risk is inherent to a virtual Basis risk does not usually
risk XB PPA is the price correlation XB PPA as the wholesale apply to a physical XB PPA
between the market(s) electricity prices in the market(s) itself, as the price payable
where the generation asset where the assets are located is the agreed price for the
is located and the market(s) may not correlate with the electricity rather than a
where the load is located. If wholesale price in the market(s) net price determined by
the relevant prices do not where the load is located. The reference to a market price.
move in tandem, this will lead allocation of basis risk to the However, if variable price
to the (virtual) PPA providing corporate buyer or power structures are included to
an imperfect hedge for the producer (depending on which hedge part or all the volume
corporate buyer (assuming market the PPA payments are of a physical XB PPA, then
the power producer sells net-settled against) will be a key basis risk would be relevant.
the generated power into negotiation point.
the market of asset location)
– and thus continued Further detail on virtual XB
exposure to price volatility PPA basis risk allocation and
(see ‘Implications of basis mitigation options is available
risk’). Variations in currency in ‘Implications of basis risk for
between markets (e.g. GBP to virtual XB PPAs’.
EUR) may exacerbate this risk.
Price risk Price risk for XB PPAs results Lower wholesale power prices in Lower wholesale power
from changes in the various the market(s) of the generation prices and the resulting
drivers that impact electricity asset location are a risk in a additional export of power
prices in the markets of asset virtual XB PPA (assuming that to neighboring markets with
location and/or load location(s). the corporate buyer is bearing higher wholesale prices would
the basis risk and has not lead to a wider market spread
For example, changes in the mitigated that risk) because the and an increase in the price
energy mix over time can net-settlement between the of interconnection capacity
drive price risk. A reduction wholesale power price in the rights for physical XB PPAs (if
in fossil fuel generation and/ market of the asset location and not hedged appropriately).
or an increase in renewable the agreed PPA price can result
generation over time has the in the corporate buyer paying Price risk resulting from
potential to negatively affect the difference versus that lower interconnector capacity
XB PPA pricing by leading wholesale power price while still auctions applies to physical XB
to lower wholesale power paying higher wholesale power PPAs only; see further details
prices, particularly when prices in the market(s) of their in ‘Implications of cross-
interconnector capacity to load location. border power transmission for
neighboring markets is limited. physical XB PPAs’.
Change Policies or regulations may Where a virtual XB PPA is priced Changes in policy,
in law change in each market over by reference to the market regulation, transmission and
risk the course of the PPA tenor, where the asset is located, the interconnector rules all have
affecting the operational primary change in law risk is in the potential to affect physical
management and financial that of the wholesale electricity XB PPAs. This may include
performance of the XB PPA. market of asset location. This changes to taxes or market
In addition to the market(s) may include changes to policy design. Dealing with this
of the generation asset and regulation. Dealing with under a physical XB PPA will
location and market(s) of this under a virtual XB PPA will depend on the negotiation of
load location, it is necessary depend on the negotiation of its its terms (for example, in what
to consider all intervening terms. circumstances such changes
transmission markets. will enable a discussion on
economic impacts).

The physical XB PPA structure – using the definition in this report – presents considerable uncertainty and risk and there are therefore
12

no known examples in Europe today (see an explanation in ‘Implications of cross-border power transmission for physical XB PPAs’). For
completeness, and as innovative approaches to physical XB PPAs may be developed in the future, we have provided commentary on physical
XB PPAs in this table in addition to the more established virtual XB PPA structure.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 21

Implications of basis is generated to the wholesale Another strategy would involve a
risk for virtual XB PPAs electricity prices in each market corporate buyer accepting basis
where load is located. Price risk but then looking to mitigate
Allocating basis risk differences will change over the the impact via a hedging strategy,
Virtual XB PPAs require the duration of the PPA, driven by for example by paying a wholesale
contracting parties to agree on the several factors, such as wholesale market trader to take on the basis
allocation of basis risk. The agreed electricity price reductions due to risk. Currently there is limited
PPA price is net-settled against the increased renewable electricity availability of such products in
price the generator receives when generation, or the retiring of coal European markets and where
selling the produced power into and nuclear assets. hedging products are available,
the wholesale market. Basis risk they will usually be for short tenors
(e.g., 1-2 years). Some power
is the potential lack of correlation Mitigating the impact of
producers with strength in both
between the price in the wholesale basis risk
market where the asset is located the development of renewable
Where a corporate buyer is primarily electricity projects and electricity
and the price in the wholesale liable for basis risk, it can seek to
market where the load is located.13 trading may be able to internalize
mitigate the impact of that risk by the risk for a premium.
The corporate buyer would bear using different pricing structures
the basis risk in a virtual XB PPA and dedicated hedging strategies. A further example of a hedging
when the agreed PPA price is net- strategy (used predominantly in the
settled against the wholesale price An example of the former would United States) is a “fixed-volume
in the market where the electricity be to not accept the entirety of swap”, which can significantly
is produced, not in the market the risk by using a “cap and floor” reduce the impact of basis risk
where the corporate buyer’s load is virtual PPA. This would reduce the for the corporate buyer. Under a
located14. If the wholesale prices in impact of basis risk for a corporate fixed-volume swap, in any given
each of these markets do not move buyer by limiting the range across hour the hedge provider takes
in tandem, this will lead to the virtual which the net-settled PPA price the variable net-settled price and
PPA providing an imperfect hedge can fluctuate. This so-called “collar” pays a fixed price to the corporate
for the corporate buyer – and thus comprises the maximum (cap) and buyer, for a fixed volume of power
continued exposure to volatility in minimum (floor) price payable. This, as agreed between the two parties.
power purchasing.15 however, does mean that the power As this structure is based on a
producer will bear some of the fixed-volume commitment, the
Therefore, assuming the corporate impact of the basis risk (whenever
buyer bears the basis risk, it corporate buyer is responsible for
the net-settled PPA price is outside managing the resulting shape and
will need to evaluate the price the collar range) and therefore will
correlations between wholesale volume risk.16
be relevant to lender-assessment of
electricity prices in the market(s) the project. Risk mitigation strategies –
where the electricity is generated particularly those managed by a
and in the market(s) where the load third-party or the power producer
is located (and potentially account – come with additional costs. It
for currency differences). If the is therefore important to weigh
virtual XB PPA is covering load in the additional costs against the
multiple markets, the analysis of economic upside that a virtual XB
price correlations must compare PPA may provide to evaluate the
the wholesale electricity price in overall economic viability of the
the market where the electricity commercial pricing terms of the PPA.

It is important to note that there are slight variations in the current definitions of basis risk used by different market actors. Some actors use
13

different naming convention (e.g. basis risk for developers, but hedge risk for corporate buyers). Others are including the price differential
between the wholesale and retail prices in the market where the load is located within the basis risk definition. It is therefore essential to ensure
that all contracting parties use a common definition to avoid misunderstanding.
Alternatively, the agreed PPA price can be net-settled against the wholesale price in the market where the corporate buyer’s load is located. In
14

this instance, the developer is taking on the basis risk. To date it has been more common for basis risk to be borne by the corporate buyer.
As price convergence increases across markets in Europe, basis risk decreases for XB PPAs. An increase in market coupling and an
15

expansion of interconnector capacity in Europe will drive greater price convergence across markets.
For further information on fixed-volume swaps and their impact on risk, please see: The “P99 hedge” that wasn’t (May 2019)
16

Cross-border renewable PPAs in Europe: An overview for corporate buyers 22

Implications of Obtaining interconnector receiving capacity rights for the full
cross-border power capacity rights for the year in question, increase workload
transmission for duration of the XB PPA and reduce price visibility.
physical XB PPAs As explained in ‘Annex: Process of To reduce the uncertainty of
When using an interconnector to power trading on interconnectors obtaining interconnector capacity
physically flow electricity from one in Europe’, the ability to purchase rights for the duration of the PPA
market to another for a physical interconnector capacity rights in contract, some market players
XB PPA, complexities arise from a auctions in Europe is commonly are advocating for interconnector
mismatch between the purpose of limited to one year and therefore capacity auctions that enable the
the existing rules of cross-border mismatches the typical tenor purchase of capacity rights further
power trading on interconnectors of 10-15-year PPAs. Even if the into the future, such as 5-, 10- or
and the purpose of long-term PPAs: responsible party17 is successfully 15-year auctions. Even if it were
interconnector capacity rights (i.e. awarded annual capacity rights for possible to purchase capacity rights
PTRs and FTRs) are predominantly the first year of a 15-year physical on a 5-, 10- or 15-year basis, it
used as financial contracts to XB PPA, it would need to participate would not be possible to accurately
enable efficient trading of power in 14 additional annual auctions forecast the market price spread
over the interconnector and are throughout the PPA’s lifetime. This for such tenors and the responsible
not designed for the purpose of adds a high degree of uncertainty to party would likely be unwilling to
physically delivering power for an the PPA, both in terms of whether the shoulder the significant risk and
individual long-term PPA contract capacity rights will be awarded each upfront investment. In short, there
aiming for price visibility. This year (i.e., if the bid is high enough) is a mismatch between the purpose
creates two main risks for the party and the change in auction prices for of interconnector capacity auctions
responsible for trading power over those capacity rights over time. and PPAs – interconnector capacity
the interconnector for a physical XB If the responsible party does not auctions are designed for trading
PPAs: (1) obtaining interconnector receive annual capacity rights for any electricity efficiently between two
capacity rights for the duration of the one year, it can instead participate markets, not for the physical delivery
XB PPA; and (2) managing the price in monthly or daily auctions, though of power in long-term individual
risk that arises from the auctioning this may reduce the probability of PPAs aiming to reduce risk.
of interconnector capacity rights
and from the price spread between
all markets concerned. Both are
explained in more detail in this section
to outline why the physical XB PPA
structure – using the definition in this
report – presents uncertainty and risk.

Readers who are not familiar with

cross-border electricity trading and
the use of physical transmission
rights (PTRs) and financial
transmission rights (FTRs) in Europe
can find an explanation in the
Annex: Process of power trading on
interconnectors in Europe.

It is possible to allocate the responsibility to secure interconnector capacity rights to the corporate buyer (to, for example, enhance the
17

bankability of the project) or to the power producer, or both parties can share the responsibility.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 23

Managing cross-border ii. if the auction price of the and whether they have other drivers
transmission price risk capacity rights turns out to be for choosing a physical XB border
Price risk relates to price correct (i.e., equal to the actual structure, such as those described
exposure of parties to a PPA over price spread between market A earlier in ‘XB PPA drivers and benefits’.
its tenor. The auction price for and market B), the responsible
party will pay exactly the price Today, there are no publicly known
interconnector capacity rights examples of successfully executed
is determined by the forecasted spread for their capacity rights
and therefore any price savings physical XB PPAs in Europe due to
market price spread between the risks outlined above19 and the
market A and market B made by from a lower price in market A
are negated; and mismatch between the purpose of
the various bidding parties, over the cross-border electricity trading
the auction period (whether annual, iii. if the auction price is higher rules and the purpose of a physical
monthly or daily).18 Cross-border than the actual price spread, the XB PPA to achieve price visibility.
transmission price risk arises in a responsible party would pay a
physical XB PPA for the responsible higher price by flowing electricity In the long term, an increase in
party where the awarded auction from market A to market B and market coupling20 and an expansion
price does not match the actual realize a loss. In this case, the of interconnector capacity21 in
price spread between the two most economical option may Europe will drive greater price
markets over the chosen period be to decide not to transmit the convergence across markets and
(annual, monthly or daily). electricity but instead to sell the larger single market areas would
electricity from the PPA asset in remove the need for obtaining and
For example, where the responsible using interconnector capacity rights
party wishes to transmit power from market A and purchase electricity
for the corporate buyer’s facilities as described above altogether.
market A (market of generation In the meantime, pan-European
asset) to market B (market of in market B, i.e., not executing the
physical XB PPA. energy suppliers may innovate the
load location) because generally theoretical physical XB PPA structure
electricity prices in market B are As a result, depending on the described in this report to effectively
higher than in market A and the difference between the auction evidence physical delivery of power
price in market A equals the agreed price and the actual market price without engaging in cross-border
PPA price: spreads, the responsible party will trading on interconnectors for
i. if the auction price is lower take on considerable price risk which individual contracts.
than the actual price spread, may not align with their desire to
the responsible party will pay a achieve price visibility with a PPA. This
lower price by flowing electricity means a physical XB PPA – using the
from market A to market B and defintion in this report – will depend
realize a price saving; on the risk appetite of a corporate
buyer, their ability to negotiate a PPA
price lower than the price in market A

18
Where a physical XB PPA is signed for two non-neighboring markets, the same activity must be undertaken for the intermediary market.
19
For completeness, the responsible party is exposed to volume risk as well as to price risk, as capacity rights purchased in advance cannot
exactly match the volume of power generated and transmitted as part of the PPA (with the exception of a fixed baseload PPA). The responsible
party is exposed to volume risk for: (a) the missing power supply (for which it is necessary to purchase additional capacity rights in daily
auctions); or (b) the volume of capacity rights not nominated, such as FTR and excess PTR (which will be lost or sold). Where the volume of
capacity rights does not match the volume of electricity generated, the TSO may purchase electricity in market A/B and sell in market B/A on
the responsible party’s behalf, as explained in ‘Using interconnector capacity rights’ in the annex.
20
19 European countries are currently part of the Multi-Regional Coupling (MRC) and the European Union plans to continue to add markets to
eventually create a single pan-European electricity market.
21
Interconnector capacity across Europe is currently limited between certain markets, particularly southern markets such as Spain and
Portugal, which limits price convergence between markets. Europe aims to increase interconnector capacity equivalent to 15% of total
power generation capacity by 2030, and is currently just over halfway to target. For more information on interconnector targets, see: https://
ec.europa.eu/energy/topics/infrastructure/electricity-interconnection-targets_en

Cross-border renewable PPAs in Europe: An overview for corporate buyers 24

Sourcing and require a significant pan-European number of contracts covering loads
contracting sourcing activity that may be in several markets.
complexity unfamiliar to in-house procurement
teams. However, there is also an Table 3 outlines the key elements of
The complexity of contracts is the complexity and the implications for
upside, which includes the potential
most challenging hurdle for many corporate buyers.
simplification and consolidation of
corporate buyers considering a XB
sourcing activities under a smaller
PPA. The execution of a XB PPA may

Table 3: Sourcing and contracting complexities for XB PPAs and their implications for corporate buyers

Category Description and implications for corporate buyers

Sourcing Key considerations when undertaking a XB PPA sourcing process include:
process • In general, XB PPAs are more complex than in-market PPAs due to the involvement of (at
least) two electricity markets. A XB PPA requires thorough market expertise to understand
and gain comfort with the fundamentals of each market’s political and regulatory framework,
market fundamentals and resulting key risks.
• Going market-by-market to source renewable power via physical in-market or physical XB
PPA contracts takes time and resources and requires careful tracking of terms.
• Using a competitive bid process to contract a suitable project is generally advisable as there
are variations in price and in development and construction risks between power producers.
By comparing projects based on overall benefit and risk, corporate buyers can find the most
suitable deal for their requirements.

Accounting One of the largest complexities in a PPA is the accounting implications. XB PPAs don’t trigger
implications additional IFRS accounting implications compared to in-market PPAs, but as accounting of
PPAs is a key concern for virtual PPAs (which are currently the preferred model for XB PPAs), we
include the implications here to reiterate their importance in the decision-making process.

For companies reporting under IFRS, a contract that includes net-settlement – meaning
that the company is subject to gains or losses depending on the outcome of the difference
between the wholesale power price and the agreed upon PPA price (like in a virtual PPA) – may
be viewed as a derivative. A company’s position on derivative and mark-to-market accounting
under IFRS may guide its decision to use a virtual PPA structure or not. European and/or local
financial services laws usually also treat a virtual PPA as a financial instrument. Ultimately,
accounting treatment depends on the contract structure, volatility of the asset, and the risks
that can be managed through other means.

Accounting practices as well as interpretation of relevant rules cannot be sufficiently

discussed within this report. Third-party advisors, financial auditors and legal counsel must
evaluate the correct accounting treatment for every PPA. For further commentary, see IFRS
accounting outline for Power Purchase Agreements.

Credit Power producers and financiers typically require evidence that the corporate buyer expects
implications to be financially fungible over the duration of the contract. For XB PPAs, one corporate buyer
entity may be a party to a XB PPA for several of its affiliated companies in Europe. This will
raise important internal discussions regarding, for example, how the group of companies
benefiting from the XB PPA shares or allocates the credit (and other) risks. Such decisions will
likely require the engagement of European-wide energy procurement professionals and senior
stakeholders. It may be necessary to engage colleagues outside Europe if the corporate buyer
has its headquarters elsewhere.

Legal A XB PPA may increase legal complexity. Like with credit risk, companies should ask questions
implications about local and corporate legal authority and who has the ultimate authority to make legal
decisions. In addition, each market has its own legal system, which will need consideration
depending on the structuring of the XB PPA contract.

Taxation Taxation implications may arise for all parties to a XB PPA. Parties must engage their tax
implications departments to understand the tax implications that would apply to them.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 25

Case study: In January 2020, AB InBev to aggregate demand from
AB InBev powers European announced the largest pan- several countries to contribute to
breweries with virtual European PPA signed to date the build-out of new solar power
cross-border PPA to purchase 100% renewable plants.
electricity for its European
brewing operations.  This deal will enable all of AB
Structure: Virtual XB PPA InBev’s European-brewed
Generation market: Spain The 10-year virtual cross-border beers to be produced with
Offtake markets: Belgium, PPA will cover the electricity 100% renewable electricity. A
Germany, the Netherlands, the demand of AB InBev’s 14 new symbol on the Budweiser
Canary Islands and Luxemburg breweries in Western Europe pack amplifies the sustainability
Capacity: 130 MW with 130 MW of capacity from message for consumers
two new solar farms in Spain. and encourages sustainable
Technology: Solar PV Choosing a virtual cross-border consumer choice.
Tenor: 10 years PPA structure enabled AB InBev

Key learnings
“Choosing a virtual cross-border PPA structure enabled us to maximize our impact
across Europe. My advice for others considering a similar approach is to cast a wide
net when screening for potential projects and partners, to identify the right choices
for your company and intended impact. Corporate buyers should make sure they
are comfortable with the virtual PPA structure from an accounting standpoint early
on in the process, to strengthen internal buy-in from the start.”
Moritz Bernhoerster, Director Global Procurement, AB InBev

Cross-border renewable PPAs in Europe: An overview for corporate buyers 26

5 GO treatment and affiliated renewable
electricity procurement claims

Cross-border renewable PPAs in Europe: An overview for corporate buyers 27

 5 GO treatment and affiliated renewable
electricity procurement claims
The GOs of any renewable own and cancel the GOs affiliated As a result, corporate buyers should
PPA drive its environmental with the asset(s) covered by perform a thorough analysis of
value for a corporate buyer. the PPA in a 1:1 ratio with their GO management in each market
GOs are traceable by their electricity generation (i.e., one where they have PPA projects and
unique reference numbers, certificate for one megawatt electricity load – should they intend
making them a credible hour of power produced). A to transfer the GOs to each load
form of evidence when fundamental consideration for market and then cancel them in
making renewable electricity XB PPAs is therefore how each each market’s registry.
procurement and carbon market involved in the XB PPA treats
reduction claims. Without GOs, including the market(s) of As an alternative to cancelling GOs
GOs, the corporate buyer may generation as well as the market(s) in each load market, a corporate
receive economic benefits of the company’s load. Treatment buyer can contract a XB PPA in a
from a XB PPA but cannot can vary from market to market market that accommodates the
make evidenced carbon and understanding the rules is cancellation of GOs that do not
reduction claims.22 necessary when evaluating either match their in-market load, which
XB PPA model.24 is the case for the majority of AIB
According to the EU Renewable member countries.25 In such cases,
Energy Directive, every EU Some markets: the power producer can cancel
country must implement its own the GOs on behalf of the corporate
national GO certificate system, • Allow the transfer of GOs buyer in the market where the
which means that systems may across market borders for electricity and GOs are generated,
differ from country to country. cancellation in a different requiring a single cancellation
The Association of Issuing market; fee, and it is then possible to
Bodies (AIB), which represents 27 apply the associated claims on a
• Prohibit the cancellation
national issuing bodies, created pan-European basis. In order to
of more GOs than there is
the European Energy Certificate understand the restrictions in each
matching load for in that
System (EECS)23 in 2002 to market, the corporate buyer should
market, while others allow the
standardize GO certificate systems refer to the EECS domain protocols
cancellation of the excess;
across its member countries. and the AIB datasheet on imposed
The standardization of certificate • Do not require the corporate conditions for trade, expiry and
systems increases transparency buyer to have load in the market cancellation.
and credibility for GO accounting. where it purchases and cancels
the GOs; Corporate buyers should be
mindful of any potential changes
GO treatment for • Have fees for GO cancellation or to current regulations on how to
XB PPAs for excess cancellation; and/or and who can cancel GOs and make
Corporate buyers can use XB sure the XB PPA contract accounts
PPAs to make renewable electricity • Allow only local suppliers to for future changes to regulation
procurement claims when they cancel GOs. (see footnote 24).

For further information on the GO system in Europe, see https://www.aib-net.org/certification. For further commentary on EACs for corporate
22

renewable PPAs, see WBCSD report Innovation in Power Purchase Agreement Structures (March 2018).
For more information, see https://www.aib-net.org/eecs.
23

The current legal framework for treatment of GOs is set by the 2009 Renewable Energy Directive (RED). This law has been superseded by
24

the Recast Renewable Energy Directive (REDII), which entered into force in December 2018. The new law will increase standardization of GO
treatment across EU countries, which member countries must fully implement into national law by the end of July 2021. See the Guide to
REDII Article 19 Implementation (RECS International, March 2019) for further information.
This is especially relevant for physical XB PPAs with cross-border electricity trading, where if market prices are higher in the market where the
25

electricity is produced, power will flow in the opposite direction on the interconnector and the nominated power cannot be transmitted. The
ability to cancel GOs in the market of generation ensures that the corporate buyer can still receive the environmental attributes associated
with the project in times of reverse flow.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 28

GO disclosure and boundary" in Europe is essential • Guidance on the accounting of
reporting for XB PPAs to be able to make evidenced Scope 2 emissions issued by
carbon reduction claims from CDP issued in July 2020 states
It is not sufficient to be allowed
renewable electricity procurement that from 1 January 2022 the
to cancel GOs generated in one
through a XB PPA in Europe. market boundary in Europe
market to cover demand in another
will encompass AIB member
market – corporate buyers must The Scope 2 Quality Criteria refer countries,31 whereas for all
also understand the guidance on to market boundaries but leave the non-AIB member countries
GO disclosure and reporting to be determination of a market boundary the market boundary will be
able to make evidenced carbon open to interpretation, directing the same as their geographical
reduction claims for a XB PPA. corporate buyers instead to follow boundary. Contracts signed
guidance from regulatory authorities up until 31 December 2021
The GHG Protocol Scope 2 Guidance
and/or certificate issuing bodies. outside of the AIB market
standardizes how corporate buyers
measure emissions from purchased In Europe, AIB member countries boundary will be accepted for
or acquired electricity using two allow the transfer of GOs to other AIB CDP reporting until the end of
accounting methods: location-based member countries, as well as to non- the respective contract period.
and market-based.26 For a XB PPA, AIB member countries through ‘Ex NB: this guidance is current as of
corporate buyers must use the Domain Cancellations’.29 However, December 2020 and is liable to
market-based accounting method from a reporting standpoint, there change. Please check sources for
in addition to the location-based are different interpretations of what updated guidance.
method, as it reflects emissions constitutes an acceptable market
from electricity that companies boundary when using contractual While the definitions will differ from
have purposefully chosen.27 For the instruments (including PPAs and 1 January 2022 and have changed
market-based accounting method, GOs) to make evidenced carbon over time, the main message is
corporate buyers must state the reduction claims in Europe, even if Ex that the higher the traceability and
origin of GOs and ensure that they Domain Cancellations are permitted: transparency of the approach that a
adhere to Scope 2 Quality Criteria. corporate buyer chooses, the more
• Market boundary guidance robust the renewable electricity
For XB PPAs, a key consideration issued by RE100 in May 2019 procurement claim is. In the future,
within the Scope 2 Quality Criteria states that the majority of we hope to see a market consensus
is that the contractual instruments European countries make up on the definition of a market
(including PPAs and GOs) must be a single market for renewable boundary in Europe for reporting
“sourced from the same market electricity sourcing and purposes. As the AIB increases its
in which the reporting entity’s reporting, meaning that the membership regularly, the above
electricity-consuming operations market boundary encompasses two definitions are expected move
are located and to which the all countries within the closer to agreement over time.
instrument is applied”.28 Therefore European Single Market.30
the definition of a "market

“GO treatment was an important factor in our decision to choose a virtual cross-border
PPA. Under Spanish domain protocol today, both the power producer and/or retail licensed
supplier can cancel the GOs on behalf of the corporate buyer and cancellation of GOs can
be done in excess of in-market load. Moreover, GOs issued in Spain can be exported and
canceled in all AIB member countries. This allows Novartis to claim and report renewable
electricity procurement for all generation affiliated with our virtual cross-border PPA.”
Mark Scoffin, Head of Procurement – Utilities, Novartis
A location-based method reflects the average emissions intensity of grids on which energy consumption occurs (using mostly grid-average
26

emission factor data). A market-based method reflects emissions from electricity that companies have purposefully chosen.
Corporate buyers using contractual instruments, such as a XB PPA, must report Scope 2 emissions using both the location-based method
27

and the market-based method. This is also known as “dual reporting.” See section 1.5.1 of the GHG Protocol Scope 2 Guidance.
GHG Protocol Scope 2 Guidance, p. 60
28

For more information, see: https://www.aib-net.org/facts/market-information/statistics/ex-domain-cancellations

29

Defined as countries from the European Union (EU-28) and the European Economic Area, but excludes Iceland, which does not have an
30

interconnection to mainland Europe.

For a full list of AIB members and prospective members, see: https://www.aib-net.org/facts/aib-member-countries-regions/aib-members
31

Cross-border renewable PPAs in Europe: An overview for corporate buyers 29

Case study: Philips and Signify, announced European footprint, by joining
HEINEKEN, Nouryon, Royal the signing of a joint virtual forces and making significant
Philips and Signify team up cross-border PPA in Finland. With progress towards their ambitious
to combat climate change advisory support from Schneider individual sustainability and
Electric, the PPA was signed renewable electricity targets.
with virtual cross-border
with French renewable energy
PPA in Europe developer Neoen for a 126 A key reason for choosing the
MW portion of the Mutkalampi virtual cross-border structure
Structure: Virtual cross-border was to allow the companies to
onshore wind farm, located in the
PPA retire the GOs from the project
west of Finland.
Generation market: Finland on a pan-European basis, to
Power producer: Neoen The Consortium represents address the electricity footprint
global sustainability leaders in countries where the in-country
Capacity: 126 MW
across a broad range of industry load is too small to address
Technology: Onshore wind sectors: chemicals, health with individual PPAs. In total,
Tenor: 10 years technology, lighting and brewing. the Consortium’s part of the
The virtual cross-border PPA Mutkalampi wind farm is expected
In December 2020, a consortium structure enabled them to take to add over 330 GWh of clean
of four leading Dutch companies, a collaborative and innovative electricity to the grid annually.
HEINEKEN, Nouryon, Royal approach to addressing their

Key learnings:
“When a group of companies joins forces on a project like this, they can have
a bigger impact and accelerate the transition to renewable electricity sources.
This is key to address the European electricity footprints of all companies
involved in a scalable and impactful way, as well as to achieve the targets as set
out by the Paris Agreement. One of our key learnings is that you need to team
up with likeminded sustainable companies for it to become a success. We
hope to inspire other companies to follow this example by considering multi-
buyer structures to maximize their impact when sourcing renewable energy.”
Bas Lubach, Global Category Buyer Energy, Heineken

Cross-border renewable PPAs in Europe: An overview for corporate buyers 30

6 Internal and external communications
for XB PPAs

Cross-border renewable PPAs in Europe: An overview for corporate buyers 31

 6 Internal and external communications
for XB PPAs
The concept of a European • Share the impact that the XB Such information will also help
XB PPA is relatively new PPA has on the company’s NGOs support the development
to corporate buyers, renewable electricity purchasing of more XB PPAs. Their position on
project developers, and the targets, as well as on the XB PPAs varies worldwide, but in
associations and NGOs that national electricity system in all Europe, where there is a high level of
help to shape and guide the markets involved; and interconnection and geographical
market, particularly when proximity between markets, many
it comes to communicating • Use reporting standards to do see XB PPAs as a credible
environmental claims. evidence that the XB PPA method of corporate renewable
meets recognized guidance for electricity sourcing as long as:
Clear internal and external making renewable claims.
communications help stakeholders 1. The XB PPA adheres to
understand the drivers behind a reporting standards for
company’s selected approach and For example, a corporate making environmental claims
the intended impact – which the buyer may be able to achieve (see ‘GO treatment and
individual company strategy often a better yield and price from affiliated renewable electricity
ultimately drives. a solar PPA by procuring procurement claims’); and
power in a market with
When communicating externally higher load factors, such 2. The corporate buyer has
about XB PPAs, corporate buyers as Spain (i.e., where higher considered procuring electricity
should: solar radiation results in in-market and concluded that
higher electricity production), the driver(s) for selecting a XB
• Be transparent about the to meet its electricity PPA are sufficient to warrant a
details of the project they demand in a market with preference over an in-market
are buying electricity from, a lower load factor, such PPA.
including location, technology, as in Belgium. This has a
size and additionality; Effective internal communication
wider electricity system
is just as important as external
• Clearly state the drivers for impact by encouraging
communication. Generally,
choosing this contract type the development of solar
corporate renewable PPAs involve
and explain how it fits with their projects in the locations best
a significant number of internal
wider portfolio of renewable suited to that generation
stakeholders due to their size,
electricity procurement and technology and thereby
complexity, risk profile and public/
their company’s procurement optimizing resources.
NGO visibility and scrutiny. A XB
strategy; PPA amplifies the complexity of
internal stakeholder engagement
when stakeholders – including
senior stakeholders – from a variety
of countries, who speak a variety
of languages and have a variety
of concerns must cooperate.
Clarifying the key decisions to
internal stakeholders at an early
stage will increase understanding
and internal buy-in.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 32

Case study: Key learnings:
DSM on course to outpace “Breaking ground with new contract structures can
their 75% renewable
electricity target with introduce complexity compared to a business-as-usual
virtual cross-border PPA in approach, but the outcome can have a greater impact
Europe on driving the energy transition. Internal communication
is essential from day one and remains extremely
Structure: Virtual XB PPA important throughout the process. For a cross-border
Generation market: Spain PPA structure, internal stakeholders need to be brought
Offtake markets: 9 European along on the decision-making process of choosing
countries a cross-border rather than in-market structure and
Power producer: EDPR
selecting a virtual rather than physical cross-border
Capacity: 76 MW
PPA. Corporate buyers should consult industry
Technology: Solar PV and
onshore wind standards (e.g. market boundary guidance from RE100
Tenor: 15 years and CDP) and drive forward the option that has the
largest impact whilst making business sense.”
In April 2020, nutrition, health and
sustainable living company Royal Sim van der Linde, Project Director Renewable
DSM signed its largest PPA in Energy, Royal DSM
Europe to date: a virtual cross-
border PPA to source electricity
from one wind farm and two solar
power plants in Spain.

The virtual cross-border PPA

covers the electricity demand
of DSM facilities in 9 countries
across Europe. Combining
these loads and using them to
contribute to the development
of new wind and solar capacity
was the main driver for choosing
a cross-border structure. As all
9 countries fall within the market
boundary guidelines from RE100
and CDP, the loads can be
bundled together under a single
cross-border PPA.

With the announcement of

this deal, DSM is on course to
outpace their target of reaching
75% of purchased electricity
from renewable sources by 2030,
also being an important part in
delivering against their Science
Based Target.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 33

7 Conclusion

Cross-border renewable PPAs in Europe: An overview for corporate buyers 34

 7 Conclusion

The concept of a XB PPA • Companies considering XB • It is necessary to weigh the

(or pan-European PPA) is PPAs should learn about the challenges of executing a multi-
relatively new to corporate differences between in-market market contract at significant
buyers, project developers, and XB PPAs, as well as the scale – such as stakeholder
utilities, traders and NGOs. distinction between physical management across a diverse
Companies have already and virtual XB PPAs. deal team and credit ownership
signed the first virtual XB – against the potential benefits
� Virtual XB PPAs introduce
PPAs in Europe and favorable that a XB PPA may provide.
project economics are increased basis risk
attracting more corporate compared to in-market Despite the complexities, as
buyers to consider XB PPAs. virtual PPAs, due to price renewable electricity markets
An ever-more connected differences between in Europe continue to grow and
electricity market in Europe the electricity market of mature, more companies may favor
and the single GO system are generation and loads. IFRS the XB PPA model for its upsides.
supporting the feasibility and accounting implications We expect to see innovation in
acceptability of XB PPAs for all may arise for both virtual XB the sourcing and contracting of
market players alike. and in-market PPAs. XB PPAs in Europe in the coming
years, particularly to tackle the
� Physical XB PPAs
XB PPAs may provide corporate risk mitigation and management
buyers with additional benefits introduce cross-border challenges laid out in this report.
compared to in-market PPAs, transmission price risk With these innovations and a
including the ability to aggregate and to date, complexities supportive enabling environment,
their load in different locations arising from a mismatch XB PPAs have the potential to make
under a single XB PPA contract and between the purpose of a material contribution to additional
therefore the opportunity to source the existing rules of cross- renewable electricity deployment in
renewable electricity at a large scale border power trading on Europe.
to meet environmental goals faster. interconnectors and the
needs for long-term PPAs
However, XB PPA sourcing and have been prohibitive for
contracting can be complex and it physical XB PPA structures
is important that corporate buyers in Europe.
fully understand the risks before
entering into a contract of this type, • Corporate buyers should also
including but not limited to: ensure they understand how
GOs will be treated in any XB
• Like all PPAs, XB PPAs require PPA they are evaluating, so
due diligence to ensure that that they adhere to the relevant
all counterparties have been reporting standard and ensure
assigned and are adequately the use of the certificates to
managing the risks they make legitimate environmental
are best placed to manage. claims.
The added sourcing and
contracting complexity for XB
PPAs increases the need for
a thorough and robust due
diligence process.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 35

Annex: Process of power trading on
interconnectors in Europe
An interconnector is the this is determined by the wholesale (though derogation may be required).
physical power line that allows power prices in each market and the As TSOs commonly sell capacity
the exchange of electricity capacity allocation and congestion rights through explicit auctions at a
between two neighboring management guidelines.32 loss, there are also several borders
markets. Interconnectors that do not allow the offering of
contribute to security of Obtaining capacity rights in any form to prevent
supply, stabilize grid frequency losses resulting in increased network
and enable commercial power
interconnector tariffs for local consumers.
flows between electricity capacity rights
markets. They are operated by Market participants typically Capacity rights currently have a
transmission system operators gain access to interconnectors maximum duration of one year
(TSOs), which can be wholly by purchasing capacity rights for almost all auctions. In Europe,
or partially publicly-owned, or (i.e., capacity options) through the auction works with a marginal
wholly privately-owned. competitive annual, monthly pricing mechanism in which market
and daily explicit auctions and participants’ bids are placed in
Cross-border electricity daily implicit auctions.33 The merit order, from the highest to the
trading using interconnectors TSOs have created platforms lowest, and the saturation of the
predominantly takes place in four and rules to standardize the capacity offered in that auction
parts: (1) electricity purchase auction mechanisms34 including determines the auction marginal
in market A; (2) purchase of the requirement that part of the price. All bids greater than or equal
interconnector capacity rights via interconnector capacity may be to the marginal price are awarded
auctions; and (3) use, loss or sale of withheld from auctions to remain with the determined marginal
purchased interconnector capacity available to TSOs to ensure system price.35 Bids are generally based on
rights; and (4) if the interconnector security. Capacity may also be market participants’ expectations
capacity rights are used, flow of the awarded through bilateral contracts for the price spread between the
corresponding volume of electricity two markets concerned.
from market A to market B and
electricity sale in market B.

It is important to recognize that

interconnectors have physical
capacity limits on the volume of
power they can flow from one
market to another. The purchased
capacity rights will be either
physical (PTRs) or financial (FTRs),
as determined by the regulator,
which affects whether the capacity
rights can be used, lost or sold.
There may also be restrictions on
time of use (such as in the case of
maintenance) and, in Europe, on the
direction of power flow, because

Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (CACM).
32

For implicit auctions, capacity rights and electricity are auctioned together, which ensures that the power flow will be from the low-price
33

market to the high-price market. Implicit auctions are applicable for short-term capacity rights (predominantly daily) and are therefore not
explained in this report. A short explainer on explicit and implicit capacity auctions can be found here.
For example, see Joint Allocation Office for Central Western Europe and Italy: https://www.jao.eu/main
34

Auction results can be found here.

35

Cross-border renewable PPAs in Europe: An overview for corporate buyers 36

Using interconnector • Choose not to use the capacity A to market B. Even with accurate
capacity rights on a daily basis. The capacity electricity generation forecasts, the
will then be automatically day-ahead forecast can never be
When capacity rights are purchased
reallocated in daily implicit 100% correct. If the responsible
on an annual basis, explicit auctions
auctions if a “Use it or Sell party nominates a higher/lower
are employed. In an explicit auction,
it” rule applies (where the volume than produced, the TSO
interconnector capacity is auctioned
responsible party receives will purchase electricity in market
independently from electricity.36
remuneration via the daily A/B and sell in market B/A on the
Where the volume intended to
auctions with a market spread responsible party’s behalf (unless
be transmitted is variable, the
between market A to market B the responsible party makes
responsible party may bid for the
or zero, whichever number is intraday trades to balance the
maximum capacity or a proportion
larger); or is lost and remitted to mismatch before gate closure for
thereof and will then need to sell or
the interconnector operator if each hour). For these reasons, the
buy the excess or missing capacity
a “Use it or Lose it” rule applies process of nominating capacity
rights in daily auctions.
(in which case the responsible rights is complex and it is necessary
For explicit auctions, the obtained party forfeits the amount paid to manage it carefully to minimize
capacity rights will be either physical for the PTR). the costs of these corrections
(PTRs) or financial (FTRs), as taken by the TSO on behalf of the
• Nominate and use a proportion responsible party.
determined by the regulator, which
of the capacity rights and
will affect the way that the capacity
sell or lose the remainder, In the case of FTRs, the responsible
rights can be used. FTRs are more
where the expected volume party cannot choose to use the
commonly issued in Europe.
of generated power is lower capacity rights. Instead, the same
In the case of PTRs, the responsible than the volume of previously process as described for a PTR
party who has been awarded annual obtained capacity rights.37 with “Use it or Sell it” when capacity
capacity rights may: is not nominated will happen
If the responsible party chooses to automatically. The owner of an FTR
• Use the capacity by use the capacity rights, it nominates will receive a payout for each hour
nominating its use daily to separate volumes for each hour based on either the price in market
the interconnector operator. at the day-ahead stage. Once it B minus the price in market A and
Nomination must be done has nominated capacity rights, the zero, whichever is higher.38
before the SDAC gate closure responsible party must transfer
time and is generally binding. the nominated volume from market

A short explainer on explicit and implicit capacity auctions can be found here.
36

Participants may also resell the awarded capacity on a secondary market on an annual or monthly basis, though this is interconnector trading
37

speculation.
Note that FTRs are available in two different versions: FTR Options and FTR Obligations. The described form here is FTR Options, where the
38

payout equals the sum of the positive price differences from market A to market B. For an FTR Obligation, the payout is the sum of both the
negative and the positive price differences from market A to market B. The Nordic EPADs (Electricity Price Area Differentials) are financially
similar to FTR Obligations. All other FTRs in Europe are FTR Options.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 37

Glossary

Cross-border PPA: A PPA where European Single Market: A Pan-European PPA: A cross-
a corporate buyer purchases geographic area that covers EU border PPA where the corporate
renewable electricity and GOs Member States plus the European buyer procures power for its load
generated outside the electricity Economic Area states of Iceland, across multiple countries in Europe.
market of their electricity load. Lichtenstein and Norway.
Physical PPA: A PPA where there is
Corporate buyer: The buyer of Guarantee of origin (GO): a physical grid network connection
electricity in a PPA (also referred The name for Energy Attribute between the generation asset and
to as an offtaker, energy buyer or Certificates commonly used in the load of the corporate buyer,
power consumer) Europe. where the electricity delivered
under the PPA is sleeved through an
Corporate renewable PPA: A Independent power producer energy service provider. Also known
contract between the corporate (IPP): An entity that is not a public as a direct or sleeved PPA.
buyer(s) and the power producer utility but that owns facilities to
(developer, independent power generate electric power for sale to Power purchase agreement
producer, investor) to purchase utilities and end users. (PPA): A contract between a power
renewable electricity at a pre- producer and a buyer of electricity
agreed price for a pre-agreed Interconnector: The physical for an agreed tariff, tenor and
period of time. The contract power line that allows the exchange capacity.
contains the commercial terms of of electricity between two
the electricity sale: contract length, neighboring markets. Tariff: The cost per unit of
point of delivery, delivery date/ electricity that a buyer pays.
Interconnector capacity rights:
times, volume, price and product. The right to transmit a specified Virtual PPA: A financially settled
Energy Attribute Certificate volume of electricity across an PPA, where a physical network
(EAC): A certificate that verifies interconnector from one electricity connection between the generation
that 1 MWh of renewable electricity market to another. asset(s) and the operational load
was produced and added to the is not required. Also known as a
electricity grid. financial or synthetic PPA.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 38

Acknowledgements About WBCSD’s REscale About the World
initiative Business Council
This report was written by WBCSD for Sustainable
with support from the contributing REscale brings together leading Development (WBCSD)
authors listed below and members companies representing the full
of the WBCSD Corporate renewable electricity value chain WBCSD is a global, CEO-led
Renewable PPA Forum. The report to accelerate deployment of organization of over 200 leading
has been prepared for general renewables and the transition to businesses working together
informational purposes only and a low-carbon electricity system. to accelerate the transition to a
is not intended to be relied upon REscale members share the sustainable world. We help make
as accounting, tax, legal or other ambition to scale up renewable our member companies more
professional advice. We thank the deployment beyond average growth. successful and sustainable by
following contributing authors: focusing on the maximum positive
This report builds on previous
impact for shareholders, the
• Peter Swank, James Lewis, WBCSD reports on corporate
environment and societies.
Fatima Sanchez and Ally power purchase agreements:
Charlton, Schneider Electric Corporate Renewable Power Our member companies come
Energy & Sustainability Services Purchase Agreements: Scaling up from all business sectors and all
• Andrew Hedges, Norton Rose globally (October 2016), Innovation major economies, representing a
Fulbright in Power Purchase Agreement combined revenue of more than
• Jørgen Bjørndalen, DNV GL Structures (March 2018) and How USD $8.5 trillion and 19 million
Multi-Technology PPA Structures employees. Our global network
• Adam White, Director, RECS Could Help Companies Reduce of almost 70 national business
International Risk (March 2019). The platform councils gives our members
And we thank the following individuals undertaking this work is called the unparalleled reach across the globe.
for contributing a project case study: Corporate Renewable PPA Forum. WBCSD is uniquely positioned
to work with member companies
• Moritz Bernhoerster, AB InBev To find out more about REscale, the
along and across value chains
Corporate Renewable PPA Forum
• Sim van der Linde, Royal DSM to deliver impactful business
and previous reports, visit our
• Mark Scoffin, Novartis solutions to the most challenging
webpage or contact:
sustainability issues.
• Simon Braaksma, Philips
Lucy Hunt
• Bas Lubach, HEINEKEN Together, we are the leading voice
Manager, Energy
of business for sustainability: united
[email protected]
by our vision of a world where more
Mariana Heinrich than 9 billion people are all living well
Disclaimer and within the boundaries of our
Director, Energy
[email protected] planet, by 2050.
This publication is released in the
name of the World Business Council This report has been produced in www.wbcsd.org
for Sustainable Development collaboration with the RE-Source
(WBCSD). This document is the Follow us on Twitter and LinkedIn
Platform, Europe’s leading forum
result of a collaborative effort for corporate renewable energy
between WBCSD, contributing sourcing. The RE-Source Platform
authors and representatives from seeks to remove barriers for
companies participating in the companies to procure renewable
Corporate Renewable PPA Forum. electricity by opening markets,
A range of WBCSD members raising awareness through its Copyright
reviewed the material, thereby Buyers' Toolkit and connecting Copyright © WBCSD, December 2020.
ensuring that the document broadly corporate renewable energy buyers
represents the majority view of the and sellers.
Corporate Renewable PPA Forum. It
does not mean, however, that every
company within the Forum agrees
with every word.

Cross-border renewable PPAs in Europe: An overview for corporate buyers 39

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