Legal comment contribution in the food sector

By Deborah Harvey, Clean Energy Partner at leading national law firm Freeths

Food production is an energy intensive business – the UN estimates that current food systems use roughly 30% of globally available energy. Intensive energy input is needed at every stage of the food production process, particularly heating, cooling, transporting and marketing.

It is perhaps no surprise, given the volatility in the energy markets over recent years, that we are seeing widespread concern from businesses in the food sector in relation to their energy costs. One effective tool which businesses can use to mitigate their exposure to energy markets is entering into a corporate power purchase agreement (“CPPA”) with a renewable electricity generator.

A CPPA is a contract between a business and a renewable electricity generator, under which the business buys electricity generated by a particular renewable energy project, such as a wind farm or solar farm. This is different to the usual method in which a business buys power from a licensed electricity supplier. Under the standard utility arrangement, a licensed electricity supplier will enter a relatively short-term contract with the business consumer and then source power to meet its obligations from a vast portfolio of electricity generators, meaning the electricity being supplied has been generated by numerous sources (some green, some less so). By contrast, a CPPA establishes a direct contractual relationship between a business and a renewable energy generator over a typically much longer term than an agreement with a licensed electricity supplier –10- or 15-year terms are not uncommon.

CPPAs also offer the contracting business an element of price stability. The CPPA would enable a food production business to agree a fixed price for all or a portion of its energy demand, which could provide that business with valuable certainty of energy outgoings, whilst also shielding the business from future price hikes over the term of the contract.

We also see CPPAs as an important tool for food businesses to support their green credentials. We are increasingly seeing food production businesses making sustainability claims and the procurement of green power, which supports the development of a renewable energy project, is an important pathway. Alongside purchasing renewable power, businesses can also purchase green certificates – Renewable Energy Guarantees of Origin (“REGOs”) and use these REGOs for sustainability reporting purposes.

There are different ways to structure CPPAs, depending on the commercial drivers for the arrangement, business needs, and the type of project that is providing the electricity. At Freeths, we’ve seen a range of businesses exploring CPPAs, including those operating in the food sector and we would encourage CPPAs as an option for food businesses looking for longterm price certainty and a way to align their energy use with sustainability commitments.