Canadian energy companies have expertise that’s valued around the world. But for many smaller firms, the risks associated with long-term power generation deals in developing markets have been significant obstacles to opportunity. Cleantech Sector Director Rob James explains how those barriers are coming down thanks to the Canadian Commercial Corporation’s new power purchase agreement offering — and how CCC makes it easier than ever for larger utilities to acquire foreign assets.
The power of the PPA
Power purchase agreements (PPAs) are the deals providers strike with customers to sell generated electricity at a fixed price for a specific period — often 20 to 25 years. In developing markets, that can be a long window: if political winds change or economic conditions shift, the agreement could be broken, leaving the provider without a much-needed revenue stream. For smaller exporters, a broken deal can literally break the bank.
Rob James says that working with CCC on PPA deals reduces that risk, making it safer and easier for Canadian companies to go after significant opportunities in emerging markets. While developing a renewable energy project can be complex, CCC’s service is straightforward: CCC signs the PPA with the foreign buyer and a second “domestic contract” with the Canadian company leading the project. While this does not guarantee payment under the contract, having the Government of Canada directly involved significantly reduces the risk profile of the deal.
“This is huge for smaller project developers especially,” James says. “Those are the companies that have maybe 15 or 20 people, but they serve as the glue on energy projects, bringing together all the suppliers, working with permitting authorities and the government buyer, managing construction, obtaining financing, and usually putting up some of the cash themselves. They’re lean and nimble and the political and financial risk of a long-term contract can be enormous for them. Our PPA mechanism reduces that risk.”
A world of opportunity
Countries are hungry for the kind of renewable energy solutions and knowledge Canadian companies can bring — especially developing countries looking to expand electrification, create more resilient power grids and meet their Paris Agreement climate targets. Many today have little domestic renewable power generation capacity and are heavily dependent on imported diesel fuel, which is expensive, unreliable and environmentally unsustainable.
“There’s a need for infrastructure,” James says, “but these countries don’t always have the expertise or the capital to build new, efficient power generation facilities.”
Canadian firms can bring a wide range of solutions to the table to meet that need, spanning everything from small-scale hydro generation, solar and wind to landfill methane, oil field flare gas capture, and other clean energy sources.
James says access to financing can be another advantage of working with CCC on a PPA. The risk mitigation CCC provides can reassure lenders, helping exporters secure better terms that ultimately boost a project’s internal rate of return (IRR).
Acquiring foreign assets
Large-scale utilities looking to expand into new markets can also benefit from working with CCC to acquire and upgrade foreign power generation assets. These are often aging facilities running at less-than-peak efficiency and maybe even operating at losses. Their owners, usually governments or agencies in developing countries, don’t have the capital or the expertise to refurbish or optimize them.
“They’re looking at significant debt incurred to keep it working,” James says. “So the best-case for them is to sell it off to a new owner who invests in refurbishing and getting it up to best efficiency. Even a two or three percent improvement can justify the sale.”
Canadian utilities have the technical capacity to improve the efficiency of these facilities. They can then enter into a PPA with the host country to generate a long-term revenue stream or sell the asset for a profit.
“Where we come in at CCC,” explains James, “is by using our government-to-government sole-sourcing mechanism to allow countries to work directly with Canada to get the most out of assets like these. Canada is a preferred partner for this sort of deal. Countries know they can trust us to stick with them.”
