The Corporate Power Purchase Agreement (CPPA) market in the United Kingdom faces a series of obstacles that slow its growth and hinder the transition to a decarbonized energy system. Despite the significant potential of these agreements to accelerate the decarbonization of electricity supply and help achieve ambitious net-zero emissions targets, structural barriers still persist, limiting their expansion.

According to the Zeigo report, one of the main issues slowing the CPPA market in the UK is the lack of investor confidence, a problem reflected in several aspects. The report highlights that for companies to participate in these agreements, it is crucial that they have an investment-grade credit rating. However, this requirement significantly limits the participation of smaller companies, which often do not meet this criterion. This, in turn, restricts access to financing for renewable project developers, who are essential to meet the growing demand for clean energy.

Additionally, the reluctance of energy suppliers to commit to long-term CPPAs for new projects, due to uncertainty about future energy prices, generates even more distrust. The report states that the current Contracts for Difference (CfD) mechanism is not sufficient to address this problem. While it is designed to support large-scale projects, it does not provide adequate support for smaller projects, which are crucial for diversifying the market and facilitating corporate participation in the CPPA market.

Market Complexity: A Hindrance to CPPA Viability

The UK energy market has become more complex over the years, creating additional barriers to the expansion of CPPAs. The report notes that the introduction of third-party charges and intricate processes in the energy supply chain has significantly increased operational costs, making the viability of these agreements more difficult, especially for smaller-scale projects.

This administrative complexity also discourages energy suppliers, who are forced to manage a web of regulations and additional costs. Meanwhile, companies seeking to purchase renewable energy through CPPAs face limited options, stalling market growth and investment in smaller renewable projects.

Grid Connection: A Bottleneck for Renewable Project Expansion

Another crucial challenge is the limited capacity of the UK’s electricity grid to connect new renewable energy projects. The report emphasizes that over 400 GW of renewable projects are waiting to be connected to the grid, creating uncertainty for developers and investors. This long queue of projects is delaying the construction of new renewable capacity, contributing to the stagnation of the CPPA market. Additionally, the high costs associated with grid constraints — which amounted to nearly one billion pounds in 2023 — directly impact the economic viability of projects and limit their expansion.

Proposed Solutions to Unlock CPPA Potential

To address these barriers, the report proposes several key solutions. Among them is the reform of the CfD mechanism to make it more accessible to smaller projects through a joint bidding system and additional support in case of buyer insolvency. This reform aims to increase investor confidence and facilitate financing for CPPA-backed projects.

Furthermore, simplifying the “sleeving” process (the transfer of renewable energy from the generator to the final buyer) is recommended, as this would reduce costs and make it easier for smaller companies to participate in the CPPA market. Finally, the report suggests a comprehensive modernization of the UK’s electricity grid to increase its capacity and facilitate the connection of new renewable energy projects. This modernization would not only improve the capacity to manage intermittent renewable energy but also speed up the connection process for developers, which is crucial for meeting the UK’s net-zero emissions targets.

A Market with Great Potential Yet to Be Unlocked

Corporate Power Purchase Agreements (CPPAs) represent a key tool for advancing the decarbonization of the energy sector in the UK. However, the market faces significant challenges related to investor confidence, market complexity, and grid limitations. Addressing these barriers through structural reforms and improvements in infrastructure is essential to unlocking the full potential of CPPAs and achieving the country’s net-zero emissions goals.