We are amidst a global shift toward renewable energy, which, for Saskatchewan and other jurisdictions rich with renewable resources, is creating a new frontier of resource development and supply opportunity. The demand for low-carbon energy continues to rise as more organizations in both the public and private sectors seek decarbonization and make commitments to carbon-neutral goals.
THERE HAS BEEN a significant growth in the renewable power being privately procured through Corporate Power Purchase Agreements (CPPAs) in the United States and Europe. In Canada, much of this development has remained within the purview of government and other public institutions.
A CPPA is a long-term agreement between a corporation and a power generator to notionally purchase electricity for a specified price and for a specified period of time. Often this is from a specific renewable project with renewable attributes such as Renewable Energy Credits or Certificates (RECs). In this way, a CCPA differs from a traditional power purchase agreement (PPA), where the buyer is often a utility or licensed electricity supplier looking to pass on that purchased supply to their corporate customers or to sell on the wholesale market.
In a physical CPPA, the corporate buyer takes title to the renewable power generated from a specific project within the same power market, which is netted off the buyer's total electricity demand. The power is physically delivered to the buyer from the renewable seller - or via a retail service provider - depending on the market. In physical CPPAs, RECs are often bundled with the power purchased.
In a virtual CPPA (also referred to as a financial CPPA), the corporate buyer procures electricity from a renewable generator at a negotiated rate or strike price. The power generated is sold into the local grid at the wholesale price. The buyer and seller settle the difference between the agreed strike price and the local wholesale price under a contract for difference (CFD) arrangement. Due to the purely financial aspect, the buyer will still require its electricity load to be supplied at the retail level.
Both the physical and virtual CCPA structures provide for price certainty and decreased operational risk for the buyer and a steady income stream and increased bankability for the power generator, all while providing the opportunity to take, and be seen taking, carbon-reducing steps.
As low-carbon power becomes more competitive with conventional power, there is an increased appetite for innovative procurement methods like CPPAs. This is exacerbated by decreasing subsidies and recent over-subscription to government-run procurement where there are more proposed projects than government and other public institutions are willing to buy. A combination of this subsidy erosion and increased power market volatility has energy generators eager to find more creative models for their projects. The unpredictability of financial support from governments is affecting the bankability of renewable energy projects, and there is a market desire for more security over revenue for financing and investment. At the same time, corporates are targeting a reduction in their environmental footprint, whilst maintaining a continuous business operation. As mentioned, one remerging solution addressing all of these issues is a CPPA.
Despite the many benefits of a CPPA, Canada is currently lagging in its deployment of this model, but it is not for lack of interest. In July 2020, the Royal Bank of Canada became the first Canadian bank to announce the signing of a CPPA with construction planned for a site in Alberta, and both the largest wind and solar non-utility procurements, Rattlesnake Ridge Wind Project and Claresholm Solar Project, exist in Alberta where there is a deregulated market.
Most provinces, including Saskatchewan, work on a traditional model of a vertically integrated utility that maintains an exclusive franchise for the supply, transmission, distribution, and sale of electricity. Except for historical exceptions unique to Saskatchewan's early settlement history, pursuant to The Power Corporation Act, SaskPower maintains this exclusive monopoly over the sale and supply of energy in Saskatchewan. Notwithstanding such exclusivity, SaskPower may, on any terms and conditions that SaskPower considers advisable, consent to the supply, transmission, distribution or sale of electrical energy by or to a person or category of persons. Absent SaskPower's consent, CCPAs are not necessarily viable within Saskatchewan. Since, in many cases, these innovative and evolving sources of electrical energy directly compete with SaskPower, there is an inherent conflict of interest in the requirement for SaskPower's consent.
As electricity marketplaces evolve, regulatory change may be warranted to keep up with the growing demand of industrial and commercial users, land and property developers and local community cooperatives as they seek out renewable energy solutions. At the same time, innovative solutions may be available that can deliver on these growing demands within the current regulatory framework.
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