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Green Finance
Corporate PPAs help finance Asia’s renewables
Structure of great use when looking for stable power costs, secure electricity supply
Daphne Li 23 May 2022

Rising oil prices, pledges to meet sustainability targets and increasing energy needs have ramped up the renewable energy infrastructure market in Asia, with corporate power purchase agreements (PPAs) increasingly seen as an instrumental part of renewable project financing and investment.

To meet its needs, Asia is expected to increase its energy capacity by about 2 terawatts by 2030, according to Boston Consulting Group. RE100, an initiative led by the Climate Group and CDP, with corporate members like Apple, P&G, Infosys and Casio, reports that 45% of the reported electricity consumption by its members is now renewable, up from 41% in 2020. Among which, 28% of the members sourced their renewable electricity through PPAs, up from 26% in 2020, the annual disclosure report says.

“We have observed clear interest in long-term corporate PPAs by blue-chip companies in some jurisdictions,” a banker specializing in project financing shares with The Asset. “And the growth of corporate PPAs are attractive to banks as they enable them to finance greenfield projects and take them to the market.”

The corporate PPA structure is of great use for corporates looking for stable power costs and secure electricity supply, particularly for those situated in regions that do not have a formal power market or with load shedding. Such structure is more common in regions where government involvement in the renewable energy market is limited.

PPA growth is underpinned by large corporates with sustainability goals to reduce direct greenhouse gas emissions and indirect emissions from electricity purchased and used by the organisation, namely the Scope 1 and 2 criteria. Small and medium customers may also tap into the renewable market with aggregate demand. 

Physical and virtual PPAs

With a physical PPA, the producer and the customer purchasing the power or energy attribute certificates (EACs) – official documentation proving energy consumption – are in the same grid region, allowing physical delivery of electricity to the customer.

Another type of PPA gaining popularity is the virtual PPA (VPPA), a financial agreement where renewable power is not physically transmitted to the customer but sold into the grid.

The customer purchases the electricity at a pre-negotiated price and the generator sells the electricity into the grid system in the open market. The generator then pays for the difference to the customer if the negotiated price is lower than the market price or receives money from the customer if the contract price is higher than the market price.

This financial structure is particularly favoured by corporates that require fragmented electric loads, desire procurement of bulk of EACs and do not prefer physical delivery of electricity. Facebook, for example, signed a VPPA with Sunseap to buy energy from Singapore's largest offshore floating solar farm in the Straits of Johor in 2021. 

Similar to VPPA, unbundled EACs, another popular sourcing method, are tradable certificates that specify the source of each unit of energy. Corporations typically purchase a large quantity of the certificates to offset their electricity use, but these certificates do not come with physical delivery of electricity. An EAC can be purchased from retailers and its accessibility and flexibility have led to many companies seeing it as the first step in green power generation. 


For example, in China, distributed photovoltaic generation accounts for about one-third of the market share. Although the country presents tremendous potential to market participants, such a structure poses a challenge for overseas investors with limited local exposure.

In most of the distributed generation transactions, the decentralized locations, a requirement in portfolio financing in these projects, are a common sticking point for international investors. The locations of a project can stretch to as many as ten provinces. Most developers, however, resort to local banks with extensive branch networks for cross-provincial coordination and on-the-ground due diligence.

Some international banks also lack internal evaluation tools and a coordinated approach for portfolio project financing where the sub-projects are usually packaged in their entirety.

However, the potential of the Chinese market and availability of corporate PPAs still make the renewable energy market attractive as many overseas promoters see the distributed model as an entry point to the utility market, which is dominated by local players for now.


In Vietnam, for example, in 2017, the country released a model PPA policy for solar power projects, raising concerns over the bankability of the PPA given its derailment from international practice. Five years after, interest from developers remains robust given the significant potential of the growing manufacturing hub.

Some of the concerning contents from the model PPAs include Vietnam Electricity being the sole and direct power purchaser, and there is no deemed availability to provide compensation if the state-owned power producer is unable to take the electricity, exposing sellers and investors to the fixed costs and potential loss of expected returns. 

Developers also have to pick up the tab for grid connection and bear the risks, but there are no adjustments for project capacity or distance from existing transmission lines.

To minimize risk exposure, the structure of the transaction often has to be customized out of conservativism. The presence of a multilateral development bank or export credit agency, together with an A/B loan structure, is often incorporated to add to the comfort of lenders. Some lenders also resort to working with established local developers with deep local knowledge to reduce risk. 

To obtain non-recourse financing for renewable projects in Vietnam, changes in the PPA feature and regulation are necessary, a Vietnam-based banker specializing in project financing told The Asset

For smaller-scale renewable projects, concerns over bankability will not be addressed in the near term. However, there may be changes for large scale projects because of the difficulty in fundraising under the restricted structure, he continues. 

However, the restriction does not cloud the prospect of the PPA market given the potential market participants see in Vietnam. The influx of industry relocation to the country indicates a surge in demand for electricity in the future. A lot of developers believe that the rates of feed-in tariff will be driven down and the market will be forever crowded so they would rather enter the market sooner rather than later, he adds.

“It will be more market efficient if there is an alignment of both onshore and offshore projects with the international standard,” he continues. For international banks who want to partake in the local transaction, flexibility and a thorough understanding of the local context are necessary.

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