Business groups are promoting power purchase agreements (PPAs) to stabilise electricity prices and encourage investment.
The agreements offer long-term contracts, providing security for both developers and buyers against market volatility.
New Zealand has lagged in adopting such agreements, but recent price volatility has increased interest in them.
A handful ofbusiness groups have joined forces to boost the number of PPAs for New Zealand corporates.
The BusinessNZ Energy Council, the Sustainable Business Council, EVAMarketplace, the Employers and Manufacturers Association, and law firm DLA Piper say more PPAs would promote investment in the sector.
The initiative arises from a call by medium to large-scale industries wanting more affordable electricity contracts.
Last year, a sharp spike in the wholesale power prices forced the closure of two Central North Island timber mills.
The agreements involve pre-purchasing power over a 10- to 20-year period by medium to large energy users, including manufacturers, commercial buildings, and others.
They can offer project developers more certainty and security around the investment, and provide the electricity buyer with a hedge against the volatility of the retail or spot markets.
Tina Schirr, executive director at the BusinessNZ Energy Council which represents the World Energy Council in New Zealand, said the agreements make new generation more commercially viable by incentivising development and giving certainty to business customers.
“Aside from security of supply, businesses are also looking to reduce their carbon footprint to help meet demand from their customers and meet 2030 targets,” Schirr said.
Power purchase agreements could act to speed up renewable energy projects. Photo / Jamie Gray
PPAs have been a big part of the investment landscape in Europe, where the deal-count peaked at 272 published agreements in 2024, representing a 65% increase from 2022.
Schirr said volatility in energy prices led to a sharpened focus on energy procurement strategies and the potential benefits of price hedges in the European market.
Around 10% of projects that get off the ground in New Zealand are driven by corporate PPAs, typically involving medium to large-sized corporate power users.
She estimated about 35% of agreements involve existing utilities, such as the generator retailers.
As it stands, corporate contracts for supply from a generator normally run from one to three years.
She says PPAs can be useful in getting new generation off the ground because the risk is shared between the supplier and the users.
They can also offer an alternative to the normal way corporates contract for electricity through the gentailer.
“When you get more generation off the ground, that in turn helps everyone because there’s just simply more renewable generation coming on the network quicker.”
Schirr says New Zealand has lagged the overseas trend because it’s only been in the last three or four years that spot market power prices have been more volatile.
“So before that, it wasn’t so much of an interesting business model for most players.
“It’s only now that there is more uncertainty what prices you might pay tomorrow that people are obviously more interested in getting a guarantee for an energy price for longer term.”
The business groups want a corporate template that would help remove some of the barriers and reduce legal costs.
“The main driver was we were scratching our heads on how do we help [improve] competition in the market, so just basically offering alternatives to your usual way of purchasing electricity.”
Sarah McHardy, general manager customer at solar power company Lodestone Energy, said the electricity market is already sending strong signals that more generation capacity needs to be built.
Ingham Chicken and The Warehouse have contracts, via PPAs, with Lodestone, to provide power.
The Warehouse gets power from Lodestone solar farms specifically allocated to the retailer.
“Based on the percentage of energy that gets generated, they take a certain percentage of that, and we spread that over a number of farms.”
McHardy said financiers like having certainty of revenue that’s going to come off projects once they are built.
She says that in New Zealand, so much generation had been built around hydro.
“So the incentives to have new renewable build with PPAs off the back of it hasn’t been the same.
“There hasn’t been a need until recently, based on where we were with supply and demand.
“The market has enabled Lodestone, as a start-up, and it meant that we have been able to build four solar farms, with a pipeline of about 18 to build across the country.
“The market is quite clear ... the supply and demand means that we need more renewable electricity and so the business case stacks up for that,” she said.
“That’s a really good thing for New Zealand.”
Jamie Gray is an Auckland-based journalist, covering the financial markets, the primary sector and energy. He joined the Herald in 2011.
