PPAs, Electric Vehicles and the Electrification of Heat: Storing a Problem?

Organisations intending to install electric vehicle charging points (EVCPs) and electricity-based heating systems in order to maximise the use and environmental impact of electricity supplied under a private wire agreement (PPA) are encouraged to check that their  scheme does not unwittingly put them in breach of the terms of their PPA.

The trend of business and other organisations taking steps to reduce their carbon footprint is not particularly new. However, in the current general context of the climate emergency, commitments to attain Net Zero and the more recent rise in gas prices, one can expect the trend towards organisations installing EVCPs and moving towards electrification of heat gaining further traction over the coming years.

The case for the installation of EVCPs and the electrification of heat

Installing EVCPs at a property has many upsides for a business:

  • adopting an electric fleet can reduce operating costs and help decarbonise transport and related operations;
  • provide a green benefit to staff, visitors and/or members; and
  • make use of electricity provided from a rooftop solar array owned by another entity and supplied under a private wire purchase agreement for electricity (PPA).

In terms of electrification of heat, organisations maybe incentivised to electrify heat in order to:

  • move away from the volatility in gas prices;
  • decarbonise their energy usage; and
  • make use of electricity provided from a PPA.

The potential issues that arise where electricity is provided under a PPA

In each case described above, one aspect that can be overlooked is whether the organisation is permitted to use the electricity for the purposes of charging electric vehicles (EVs) and as a heat source under the PPA that supplies that organisation with electricity.

In the case of EVs, the issue arises due to the PPA containing provisions that prohibit or restrict:

  • the offtaker’s ability to store electricity it receives under the PPA; and/or
  • the location of where the offtaker’s may use the electricity (which may often be restricted to a particular site, building or area).

The impact of these clauses on an EVCP project is not difficult to appreciate: the EVs will clearly store electricity, and once the EVs leave the “site” the electricity will be being used away from the area where it is permitted to be used.

The issue arising in relation to electric heating can be less obvious, and can be dependent on how the PPA is drafted. For example, a project to install night storage heaters, or mass-storage of heat in electrically-heated buffer tanks may fall foul of a PPA that prohibits storage of “energy” rather than “electricity” at the site.

Resolving the difficulties identified

Faced with such provisions in a PPA, the organisation has three main options:

  • abandon the EVCP/heating project;
  • proceed with the project in any event, in the hope that the generator will not object as and when the breach of the PPA comes to light; or
  • seek to renegotiate the PPA and/or seek a variation of the relevant terms of the PPA.

Each option has its drawbacks and the approach adopted in any particular case will need to be considered in its specific circumstances, balancing (amongst other things):

  • the downside associated with abandoning a project, including the impact of the organisation of failing to complete a Net Zero project, continued carbon emissions, and lost PR and business development opportunities;
  • the risks of the generator seeking losses for breaches of contract for a failure to comply with the terms of the PPA (together with potential legal fees and management time in defending a claim);
  • the risk of the generator seeking a wholesale renegotiation of the PPA and the scope of negotiations “snowballing”; and
  • whether a generator would be more receptive to an amendment to the PPA prior to the implementation of the project as opposed to when a breach of the PPA has been discovered.

Good governance would demand that an organisation planning a EVCP or electrification of heat project:

  • examines (and takes advice on) the PPA in order to establish the risks associated with implementing the EVCP/ electrification of heat project;
  • takes its decision on which course of action having carried out an analysis of the risks (and where possible, making provision in case those risks should precipitate into reality); and
  • maintain an auditable record of the decision making process.

Development of terms in the PPA market

For those currently party to (or planning on entering into) PPAs: 

  • offtakers will be reminded of the need to think about the long-term and need for flexibility when accepting restrictions on the use of electricity under PPAs; and
  • generators will be keen to preserve an ability to maximise value as the market for renewable electricity develops.

How Ashfords can assist

Our Commercial Team at Ashfords has a wealth of experience in advising on:

  • the installation of EVCPs;
  • the retrofit of heating solutions into buildings; and
  • the terms of PPAs (and negotiating variations to such agreements).

This article highlights one aspect which should be the subject of due diligence when embarking on an EVCP or heat electrification project. Please contact Jonathan Croley if you would like to discuss your project in further detail.

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