The Corporate Power Purchase Agreement (PPA) Fund: A driver for industrial consumers?

On 10 November 2022, the French Government announced that it has instructed Bpifrance to set up a guarantee fund called Garantie Électricité Renouvelable (the “GER”) to encourage the conclusion of Corporate Power Purchase Agreements (“CPPA”) with industrial consumers (Mise en œuvre d’un fonds garantissant les contrats d’approvisionnement de long terme pour les industriels lorsqu’ils sont adossés à des actifs renouvelables, French Government, 2022). It is inspired by the Norwegian guarantee for PPPs created in 2011.

As stated by the Minister of the Economy in the press release, the purpose of this fund is to increase the possibility of renewable energy producers in using CPPAs as an alternative to support mechanisms. The fund is combined with the measures in favour of CPPAs enacted by the law of 10 March 2023, known as the “ENR Acceleration Act”, namely (i) the creation of a specific legal framework (Rewriting of article L. 333-1 of the French Energy Code) and (ii) the extension of CPPAs to public entities (New article L. 331-5 of the French Energy Code).

Bpifrance did not need to issue a decree or order to carry out this new mission, as it falls within the organisation's mission as set out in its corporate purpose (Article 2 of the BPI's articles of association) .

The GER is operational since 1 September 2023. Its initial allocation of €68 million will cover 500 MW of new capacity (French Government, op cit.). It may be increased as the CPPA market for French energy producers keeps developing. The GER is a bank guarantee and should not be considered as state aid. It is intended to compensate 80% of the CPPA revenues in an event of default by the offtaker.

1. Offtakers, producers, assets and CPPAs covered by the GER: a wide range of coverage

Only (i) onshore wind and photovoltaic producers located in mainland France and (ii) whose facilities are connected to the public electricity grid are eligible for the CPPA guarantee fund. The GER only covers generation assets that have not yet been commissioned. It may cover assets undergoing repowering, provided that the new commissioning date has not yet been reached. Plants that have reached the end of their FiT are excluded from the scheme. Bpifrance has specified that power plants that currently sell their production on the spot market can also be covered by the guarantee fund if they move towards a CPPA in the future.

Offtakers must be industrials in the “extractive industries” or “manufacturing industries” (Section B of the French activity nomenclature). Their head office must be located in France and their consumption sites must be located in mainland France. The offtaker’s FIBEN must be between 1+ and 6+. The GER therefore covers foreign groups with subsidiaries in France.

The CPPA must have a minimum duration of 10 years and a minimum guaranteed annual volume of 10 GWh. The GER covers different CPPA contractual structures, namely (i) single producer and single offtaker, (ii) multiple SPV’s owned by the same group with a single offtaker and (iii) a centralised offtaker whose end user is an industrial customer (pooling).

2. The implementation of the GER: a protective tool for producers

The structure chosen by Bpifrance protects the producer. The producer is the beneficiary of the GER. The costs of the GER are charged to the offtaker. However, they are paid by the beneficiary in the name and on behalf of the offtaker. The producer must then re-invoice them to the offtaker. This feature protects the beneficiary against non-payment of the GER’s commissions by the offtaker.

The GER covers 80% of the remuneration provided for in the CPPA. It is only payable once the CPPA has been terminated and the guarantee has been activated. It does not retroactively cover unpaid months. Remuneration is here defined as “the product of the guaranteed volume by the guaranteed reference price”. These two parameters are set by the producer and the offtaker without any intervention by Bpifrance.

The GER may be invoked in the event of non-payment, on the due date, of three invoices corresponding to three months' supply of electricity. Each invoice must have given rise to a formal notice from the offtaker and, at the time of the claim:

• the three invoices must remain unpaid; or
• if they are consecutive, at least one remains unpaid.

The GER has a maximum duration of 25 years. It enters into force upon signature. Commission payments cannot be deferred until the CPPA has been commissioned, so there may be a time lag between commission payments under the GER and revenues from the CPPA.

3. The GER pricing: a case-by-case approach

The parameters of the GER are established on a normative basis, and for its entire duration, before it is signed. In the event of significant differences between the volumes notified to Bpifrance and the actual production volumes, the producer has the right to request a revision of the GER.

The pricing of the GER takes into account the production technology, the guaranteed annual reference volumes, the delivery period covered, the reference price, etc. To reduce its cost, the parties may decide to include a minimum price below which the revenue gap will not be covered by the GER, as well as a graceperiod (délai de carence). This is called “tailor-made pricing” (tarification sur mesure).

The cover commission is paid annually by the producer on behalf of the offtaker when the guarantee is signed, and then throughout the life of the agreement on the anniversary date (even if the guarantee is called). Administration fees are added when the first commission is paid. As the commission reflects the maximum remaining exposure to the BPI fund, it is degressive over the life of the CPPA.

The average tariff for solar power varies between €0.7 and €4.4 per MW/h (15-20 years) and between €0.7 and €3.9 per MW/h for wind power (15-20 years). The prices also include a flat administration fee (between €25k and €50k depending on the guaranteed annual volume). The introduction of a grace period (délai de carence) during the first few years of the CPPA's life means that cover prices can be reduced by up to 35%.

4. Bpifrance’s compensation mechanism for producers: a monthly indemnity

If the GER is triggered, BPI will pay the producer a monthly compensation based on market prices (payment with a one-month lag). As mentioned above, upon termination of the CPPA, the producer will sell the electricity produced on the spot market.

The GER protects the producer against “a fall in the spot price below 80% of the CPPA price, up to the minimum price”. It therefore fills the gap between the spot price and the reference price set by the CPPA.

If the market price is higher than the fixed price set in the CPPA, the surplus over 80% of the CPPA price will is considered a “notional reserve” (réserve notionnelle) for the producer. He will draw on it if the spot price falls below the 80% threshold again. The “notional reserve” is virtual. It is recorded by BPI France but does not give rise to any repayment flows between the producer and the fund. The parameters chosen ensure that there are no windfall gains for producers.

The GER, which has been requested by renewable energy producers for several years (EFET work on the development of CPPAs in France, 2021), is the ideal financial instrument to help remove the last remaining obstacles to the development of CPPAs in France for producers.