Corporate PPAs in the light of the Corona crisis

Tags: PPA

Not only as a trade instrument for post-EEG plants (producing renewable energy not covered by the statutory feed-in tariffs pursuant to the German Renewable Energy Sources Act), but also as a financing model for new plants, the majority of energy market players consider Corporate Power Purchase Agreements (Corporate PPA) to be a (very) important factor in the German energy market of the future.1 Offtakers share this view. With regard to the Corona crisis, the question arises whether its effects will have a lasting impact on the economic attractiveness of Corporate PPA in the German electricity market.

How will the Corona crisis affect the attractiveness of PPAs?

A Corporate PPA is a long-term electricity supply contract of renewable energy to be concluded between the generating company and a company (the ‘corporate’) as an offtaker. The latter is often an industrial buyer with high power consumption. Due to the expiry of the statutory feed-in tariffs for old plants from 2021 on as well as with regards to the central targets of the energy transition being (1.) 65 percent of renewable energy in the German electricity market till 2030 and (2.) CO2-neutrality in the EU till 2050, Corporate PPAs have an important contribution to make and enable additional investments for the energy transition.

Compared to other EU-member states, Corporate PPAs in Germany are still at an early stage. However, there is considerable evidence that the number of Corporate PPAs concluded will be increasing, in particular in the wind energy sector. Both, generator and offtaker, aim to protect themselves against price fluctuation in the long run by concluding a Corporate PPA.

Impacts of the Corona crisis on Corporate PPA

The question arises whether such hedging will be possible in the near future due to the Corona pandemic respectively its effects. In other words: What does the crisis and the associated uncertainty in the energy sector mean for the development of Corporate PPAs in Germany?

The Corona pandemic already has an impact on the wholesale electricity prices. This can be seen in an extreme price volatility. The question is, whether the long-term electricity price level will return to the price levels observed previous to COVID-19.2 It should be noted that both, generator as well as offtaker, should have continuing interest in the future conclusion of long-term Corporate PPAs.

Apart from the Corona crisis there is uncertainty with respect to Corporate PPAs, in particular with regard to the complexity of the contract, the risk allocation against the background of the long term as well as uncertainty regarding the future regulatory framework. An aggravation of such uncertainties might occur due to the Corona crisis. However, by way of a clever structuring of the Corporate PPA, such uncertainties can be significantly mitigated.

Virtual existing PPAs

So-called virtual Corporate PPAs are characterised by the fact that no physical or financial electricity supply takes place between generator and offtaker. The generator sells its electricity at the stock exchange, the offtaker receives its electricity required from an electricity supplier or even buys electricity at the stock exchange. In the Corporate PPA, the parties have agreed on a so-called strike price, entailing compensation payments: In case the market price for electricity is lower than the strike price, the offtaker is obliged to pay the generator the difference. In case the market price exceeds the strike price, the payment obligation is with the generator. This means that the long-term market price risk is with the offtaker, while the generator secures its cashflow by a stable strike price.

At the moment, it should be the offtaker being obliged to pay, due to the decreased wholesale electricity prices. On the other hand, the electricity consumption of the offtakers – especially of electricity-intensive ones – should be significantly decreased, as production facilities are closed or production capacities have been considerably reduced. This should put the costs to be borne by the offtaker into perspective. Furthermore, apart from the legal institution of force majeure, there are certain ways to enable the parties to adjust the Corporate PPA in a reasonable manner. Parties as well as financing banks involved, if appropriate, should therefore pay special attention to this.

New PPAs – flexible design through contractual structuring

Notwithstanding the question whether the parties intend to conclude a physical or virtual Corporate PPA, they should pay special attention to the following aspects in order to be able to deal with the developments in the energy market (potentially) caused by the Corona crisis:

1. Core: price sheet

Every Corporate PPA’s core is the price sheet: Especially in a long-term supply contract each party makes a bet on the development of the electricity price. However, it should have never been more difficult than it is today to forecast such development. The contractual design has to take into consideration the targeted commercial attractiveness for both parties on the one hand as well as each parties’ interest in a long-term price protection on the other hand.

The price sheet should therefore stipulate a lawful price adaption mechanism. The parties might agree on a fixed price per kWh/MWh or foresee a price corridor or a mixed price formula that changes between a fixed price (with discount or premium, where applicable) and a price corridor respectively minimum and maximum prices depending on season and primary energy source. Another option might be agreeing on indexations, floors or caps. In this context, the parties should well consider the contractual possibilities for each party to terminate the contract. As we’re talking about a long-term supply agreement, no party shall in general be entitled to prematurely terminate the Corporate PPA without good cause.

2. Profitability clauses and Change-in-Law clauses

By way of so-called profitability clauses as well as Change-in-Law clauses parties remain flexible in case the commercial and/or legal framework conditions the Corporate PPA is based on change in a way that it is not reasonable for at least one of the parties to sustain the contract unchanged. Regularly, such clauses foresee an adaption right for the party affected and allow termination of the contract as ultima ratio only.

In case such contractual provision is missing, an adaption of the Corporate PPA or even a termination will be governed by sec. 313 German Civil Code (interference with the basis of the transaction) or sec. 314 German Civil Code (termination, for a compelling reason, of contracts for the performance of a continuing obligation). However, referring to the aforementioned legal provisions is dangerous for various reasons and therefore cannot be recommended. A respective contractual regulation though enables the parties to agree on an individual and therefore precise regulation and thereby mitigate the potential for conflicts.

Last but not least the parties have to take into consideration that a concrete regulation is necessary with regard to the order of priority between the fixed price scheme (where appropriate) and the profitability clause. A question the German Federal Supreme Court already dealt with. Finally, the parties have to consider that also profitability clauses as well as Change-in-Law clauses must also be applied under sec. 305 ff. German Civil Code, if the Corporate PPA contains standard business terms.

Corporate PPAs as stable business model despite Corona

All things considered, the – potential – impacts of the Corona crisis on the electricity price should in principle neither prevent the generator nor the offtaker from future conclusion of long-term Corporate PPAs. Especially market players acting strategically could benefit from that. Obstacles in the market (keyword: power price compensation) have already existed before COVID-19. They can be mitigated, as well as the (potential) impacts of the Corona crisis by way of a thoughtful contract design and structuring. We would be pleased to assist you in doing so!


Dr. Carmen Schneider, Chatham Partners
Dr. Carmen Schneider is partner at Chatham Partners LLP. She focusses on project development, energy contract law, regulatory and energy trading. Dr. Carmen Schneider supports M&A transactions and financing projects in the energy sector.


1 This is one of the findings of dena-MARKTMONITOR 2030 – Corporate Green PPAs: Umfrage zu Perspektiven nachfragegetriebener Stromlieferverträge bis 2030 (July 2019), which can be downloaded from:

2 See the latest publication of Energy Brainpool, Energy BrainBlog as of 8th April 2020, which can be downloaded from:


Dr. Carmen Schneider, Chatham Partners LLP

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