{"id":289919,"date":"2025-11-17T07:29:11","date_gmt":"2025-11-17T07:29:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/289919\/"},"modified":"2025-11-17T07:29:11","modified_gmt":"2025-11-17T07:29:11","slug":"how-to-fix-the-buyers-strike-for-big-wind-and-solar","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/289919\/","title":{"rendered":"How to fix the buyers’ strike for big wind and solar"},"content":{"rendered":"

The Capacity Investment Scheme (CIS) was set up to accelerate the build-out of renewable energy by using auctions for underwriting contracts to enable 26 GW of renewables and 14 GW of dispatchable capacity by 2030.\u00a0 <\/p>\n

Whilst battery storage projects are booming, only a handful of solar and wind projects successful in CIS tenders have subsequently reached financial close and proceeded to construction.\u00a0\u00a0<\/p>\n

The slow progression of solar and wind projects with CIS awards has sparked debate about the causes.\u00a0 Some projects are still navigating planning and transmission processes and not yet in a position to reach financial closure1<\/a>.\u00a0 <\/p>\n

However, market participants report competition between projects has led to prices being awarded by the CIS that are not sufficient for projects to satisfy debt funders and reach financial closure \u2013 which means they require a power purchase agreement (PPA) with a retailer (a \u2018utility PPA\u2019) or an electricity buyer (a \u2018corporate PPA\u2019).\u00a0\u00a0<\/p>\n

As retailers have signed very few PPAs with new solar and wind projects in recent years, a lot of weight is effectively being placed on the Corporate PPA sector to fill the gap. <\/p>\n

The Corporate PPA market has become an important source of investment in renewables \u2013 around 60 per cent of the renewable capacity built since 2017 has contracted a Corporate PPA at some point in their development.\u00a0<\/p>\n

However, the Corporate PPA market is not equipped to carry this weight.\u00a0 The Federal Government has been saying that around 6000 MW of solar and wind generation needs to be installed annually to reach the 2030 target.\u00a0\u00a0<\/p>\n

In most years since 2020, the Corporate PPA deal volume has ranged between 1 \u2013 1.5 GW \u2013 and the volume of Corporate PPAs with projects before financial closure has been around 500MW or less (outside last year when 2 GW+ was signed by large resource companies).\u00a0<\/p>\n

The NEM review has focussed debate on the \u2018tenor gap\u2019 (the deficit in buyers that will sign PPAs longer than 7-years) but a more urgent priority is developing options to fix the \u2018offtaker gap\u2019 (the deficit in buyers that will sign PPAs to enable solar and wind projects to reach financial closure). <\/p>\n

This article examines trends in the Corporate PPAs, implications for the CIS and options for fixing the offtaker gap2<\/a>.\u00a0\u00a0<\/p>\n

The Capacity Investment Scheme and PPAs: Government Auctions 2.0<\/p>\n

Whereas earlier government auctions (such as the Victorian Renewable Energy Target) provided solar and wind projects with revenue certainty that took them out of the market for a PPA, the Capacity Investment Scheme is designed to keep projects in the market for a PPA.\u00a0 <\/p>\n

Earlier auctions offered contracts-for-difference that the government topped up to the agreed strike price for all output despatched to the grid if the wholesale market price was lower and vice-versa.<\/p>\n

\"\"<\/a><\/p>\n

Under the Capacity Investment Scheme, the winner bidder receives an options contract with a \u2018cap and collar\u2019 structure which is designed to provide the project with the minimum revenue required to secure debt.\u00a0\u00a0<\/p>\n

\"\"<\/a><\/p>\n

In practice, whilst the prices of winning bids are not made public, it has been commonly observed that intense competition between projects for a CIS award has led to prices that are too low for solar and wind projects to secure debt finance and reach financial closure.\u00a0\u00a0<\/p>\n

Consequently, solar and wind projects with CIS awards are still seeking PPAs to reach financial close.\u00a0 Unless they are able to finance off their own balance-sheet or take the risk of operating merchant in the wholesale market, there are three types of offtakes:<\/p>\n

a PPA from a retailer for their own portfolio (a \u2018utility PPA\u2019);<\/p>\n

a PPA with a \u2018government retailer\u2019 or utility (e.g. CleanCo, Queensland); or\u00a0<\/p>\n

a corporate renewable PPA from a public or private sector electricity buyer, either signed directly with the buyer (a \u2018wholesale PPA\u2019, a financial derivative separate from the retail electricity contract) or intermediated by a retailer (a \u2018retail PPA\u2019).<\/p>\n

However, in practice, options 1 and 2 are limited.\u00a0\u00a0<\/p>\n

The three large \u2018tier-1\u2019 retailers (around 70% market share), which hold portfolios of fossil fuel and renewable assets, have signed very few PPAs with solar and wind projects since the achievement of the mandatory renewable energy target in 2020. Tier-2 retailers are limited by their scale and sometimes credit ratings to be offtakers for new renewable energy projects.\u00a0\u00a0<\/p>\n

The Queensland government owned utilities have been major players since 2020, but the election of a Liberal-National Party government with an anti-renewables platform means that will surely no longer be the case.<\/p>\n

Can the Corporate PPA Market fill the gap?<\/p>\n

The corporate PPA market has become an important part of the Australian renewable energy sector. \u00a0 In 2025, as with most years since 2020, the deal volume is likely to between 1 \u2013 1.5 GW (advisers say there are other deals that have not yet been announced).<\/p>\n

Figure 1: Corporate PPA Deal Volume (MW), 2017-2025<\/p>\n

\"\"<\/a><\/p>\n

Outside last year, when there were some very large PPAs signed by Rio Tinto, the volume of Corporate PPAs with projects before financial closure has been around 500MW or less.\u00a0<\/p>\n

Figure 2: Corporate PPA Deal Volume (MW), by project stage, 2017-2025<\/p>\n

\"\"<\/a><\/p>\n

Corporate PPAs signed after financial closure can and do play important roles \u2013 by creating a demand-signal for retailers to contract more capacity with projects and improving financial stability for projects across their life-cycle.<\/p>\n

However, it is offtakes with projects before financial close that are required now.\u00a0 The Federal Government has been saying that around 6000 MW a year of solar and wind generation needs to be installed to reach the 2030 target.\u00a0\u00a0<\/p>\n

Could the corporate PPA market scale up? This can\u2019t be predicted but there are likely to be limits to the scale of the Corporate PPA market.<\/p>\n

Firstly, market participants observe there are a number of factors that are currently leading to buyers postponing contracting.\u00a0\u00a0<\/p>\n

\u2013 sustainability targets are the major catalyst for most PPA buyers and there is still some time before 2030 targets.\u00a0<\/p>\n

\u2013 a price gap has opened up between buyer expectations and PPA prices as underlying project costs have risen.\u00a0\u00a0<\/p>\n

\u2013 there are major uncertainties hanging over the energy transition which make it difficult to evaluate the value of a PPA; <\/p>\n

\u2013 forward pricing could be very different depending on, for example, if coal closures are postponed or proceed.\u00a0\u00a0<\/p>\n

In this context, some buyers are holding off making contracting decisions.\u00a0\u00a0<\/p>\n

Secondly, in the Corporate PPA market, the majority of contracting has been done either by large buyers directly with projects via wholesale PPAs or the tier-2 retailers.<\/p>\n

Figure 3: PPA Volume (MW) by counter-party (left) & PPA Volume (MW) by Retailer, 2018 -25<\/p>\n

\"\"<\/a><\/p>\n

Generally, wholesale PPAs are negotiated by buyers with the scale (50MW+) and credit ratings deemed to be a creditworthy off-taker by debt financiers.\u00a0 Most of the wholesale PPAs in recent years have been signed by large resource companies such as Rio Tinto and BHP with projects outside the CIS.\u00a0 <\/p>\n

We are a long way off covering the demand of large industrials and resource companies so we could see years like 2024 in the future \u2013 but there has been no sign to date that there are sufficient buyers in Australia to see this scale consistently.<\/p>\n

In the retail PPA market, it is the tier-2 retailers that drive activity.\u00a0<\/p>\n

However, most of the retail PPAs are signed after projects reach financial closure \u2013 partly because smaller retailers may lack the size and credit rating to be a creditworthy offtaker at scale for new projects and partly because there is a wider market of buyers for PPAs which are lower risk after they have reached financial close.\u00a0<\/p>\n

in the last couple of years, the wholesale PPA market has grown and the retail PPA market has slowed<\/p>\n

Figure 4: PPAs by Deal Type (MW), 2021 \u2013 2025<\/p>\n

\"\"\/Screenshot<\/p>\n

The retail PPA market and CIS have become inter-twined: the health of the retail PPA market relies in part on projects reaching financial close via the CIS to create new supply.\u00a0\u00a0<\/p>\n

Looking at Corporate PPAs across a longer time-period, around 60 of the renewables project capacity has involved a PPA at some point.\u00a0 Corporate PPAs have enabled just under 30 per cent of the renewable energy capacity built since 2017 before financial close, and just over 30 per cent during construction or operating phase.<\/p>\n

Figure 5: Renewable Energy Capacity and Corporate PPAs, 2017 \u2013 2025<\/p>\n

\"\"<\/a><\/p>\n

Note: Corporate PPAs typically contract for only some of the capacity of a renewable energy project.<\/p>\n

\u2018Contracted\u2019 = the portion of RE capacity directly contracted with a Corporate PPA<\/p>\n

\u2019Supported\u2019 = the total size of the RE capacity of projects in which a Corporate PPA has been negotiated e.g. a 50MW PPA for a 100MW project counts as 50MW in the \u2018contracted\u2019 category and 100MW in the \u2018supported\u2019 category<\/p>\n

Source: The renewable energy capacity that has reached \u2018financial close\u2019 since 2017 is sourced from the Clean Energy Council. The data on PPAs is from the BRC-A\u2019s agreement database. The database includes only publicly available information on PPAs and sometimes requires estimates on capacity based on available information \u2013 it should be considered approximate.<\/p>\n

All of which is to say Corporate PPAs play a significant role but they are very unlikely in and of themselves to fill the offtaker gap.<\/p>\n

Policy implications<\/p>\n

If market participants are correct in saying that the CIS has not led to prices that are sufficient to enable projects to reach financial close, change is required if the 2030 targets are to be achieved.<\/p>\n

What are the options?\u00a0<\/p>\n

Option 1 would be to return to a standard CfD in the government auctions.\u00a0 That doesn\u2019t appear to be on the agenda, especially as the NEM review authors have been critical of these auctions.<\/p>\n

Option 2 is to make adjustments to the CIS to enable solar and wind projects to reach financial closure.\u00a0 If the CIS awards can offer better pricing and certainty than it appears they are currently delivering, more projects can reach financial closure.\u00a0 Once that has occurred, we are likely to see a virtuous circle formed with a pick-up in the retailer PPA market and tier-2 retailer activity feeding back into demand for more renewable energy.<\/p>\n

Option 3 is to introduce a mechanism that gets the tier 1 retailers into the market for renewable PPAs \u2013 either through an incentive (e.g. carbon price) or a coal closure mechanism of some type.\u00a0 If the tier-1 retailers continue to stay out of the market, the CIS will have to do more or the government will have to explore other instruments.<\/p>\n

There has been a lot of focus on the \u2018tenure gap\u2019 \u2013 the gap in the volume of buyers who will sign PPAs beyond 7-years to longer-terms for renewable energy projects.\u00a0\u00a0<\/p>\n

Whilst it is true most corporate PPA buyers prefer short-terms (the exception are very large buyers seeking to use scale and tenure for low-prices), it is also true that most of these buyers also prefer to contract once a project has reached financial close.\u00a0<\/p>\n

A standardised contract of the type being proposed by the NEM review for years 8+ of a renewable project can be expected to streamline contracting, but the implicit assumption that the market will fill the gap for years 1 \u2013 7 does not reflect what is currently occurring.<\/p>\n

The most important gap now is not the tenure gap \u2013 it\u2019s the offtaker gap and this needs to the focus of policy-makers to accelerate the build-out of the solar and wind farms required to achieve Australia\u2019s targets.\u00a0<\/p>\n

<\/p>\n

Chris Briggs is a Research Principal in the Energy Futures team at the ISF. Chris has over 20 years of experience in policy, research and advocacy, working in Federal, State and City Government, the non-government and university sectors.<\/p>\n","protected":false},"excerpt":{"rendered":"The Capacity Investment Scheme (CIS) was set up to accelerate the build-out of renewable energy by using auctions…\n","protected":false},"author":2,"featured_media":289920,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[64,63,75,128],"class_list":["post-289919","post","type-post","status-publish","format-standard","has-post-thumbnail","category-environment","tag-au","tag-australia","tag-environment","tag-science"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/289919","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=289919"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/289919\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/289920"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=289919"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=289919"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=289919"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}