PPA in dollars: impacts on the market and the energy transition

Rio de Janeiro, July 17, 2023 – A recent change in Power Purchase Agreement (PPA) operations has brought prospects to the Brazilian electrical sector to attract new international generators and financiers. The new exchange rate framework, which came into effect at the end of 2022, has been driving large clean energy purchase and sale agreements in foreign currency – transactions that were practically nonexistent in the country until then. This market trend is increasingly stimulated by companies’ attention to fulfilling the ESG agenda, as well as expanding access to renewable energies worldwide.

With this scenario in view, the expectation is that PPAs in dollars will contribute to the growth and diversification of renewable energy purchase and sale contracts. The BloombergNEF Corporate Energy Market Outlook report brings interesting data on the subject. In 2022, 167 global corporations bought a record amount of clean energy through PPAs. In total, 36.7 GW of contracts were signed by companies from various sectors, an 18% increase compared to the previous year.

However, the Brazilian market has faced some challenges in recent years. For example, at the beginning of 2021, out of the 70 PPAs for solar and wind farms closed in the country, only 4% were in foreign currency revenues, according to a survey by Clean Energy Latin America (Cela). This was because, until Law No. 14,286, which came into force on December 31, 2022, the legislation regarding foreign currency adjustment, dating back to the 1960s and 1980s, was even more restrictive in order to preserve Brazil’s economy and avoid dollarization. Thus, energy sales operations with adjustments in foreign currency were made based on developments in Brazilian court precedents.

The debate around the new legal instrument progressed in 2021 and gave rise to the new exchange rate legal framework, which brought good prospects for PPAs to be closed in currencies such as the dollar and the euro. Law 14,286 offers greater legal certainty for renewable energy supply agreements. With this change in legislation, it is possible to simplify the structure of these contracts, making the operation more comfortable and attractive for both energy generators and exporters. Additionally, the contracting party now ensures protection against exchange rate fluctuations through a hedging mechanism, which is cheaper and optimizes project costs.

From the perspective of energy companies, signing PPA contracts in dollars also generates opportunities for new sources of funding in foreign countries. In Brazil, for example, there is still a limitation on banks offering lines of credit for financing solar and wind energy projects. So, when this door opens to the outside, financing possibilities increase and often with more attractive interest rates. Thus, there is a greater stimulus for dollar financial support for renewable energy projects in the country, which can positively impact the Brazilian economy.

The acquisition of PPAs in dollars by exporting companies has the advantage of natural hedging as the product price will be linked to the energy input price. In addition, long-term contracts with competitive prices bring cost predictability, customization of volume according to consumption profile, and allow for better risk management. EDF Renewables provides its clients with the signing of renewable energy PPAs in dollars, driving the advancement of the energy transition agenda for the construction of a sustainable energy future.

Fabiano Fuga is the Commercialization Director of EDF Renewables Brazil.

EDF Renewables Brazil:

Operating in Brazil since 2015, EDF Renewables Brazil is one of the country’s leaders in the renewable energy sector, with over 1.8 GW of solar and wind energy projects developed in Bahia, Minas Gerais, and Paraíba. EDF Renewables is a global energy company that develops, builds, and operates renewable energy plants. As a key player in the energy transition worldwide, EDF Renewables, within the EDF Group, implements competitive, responsible projects that generate value. In all the countries where it operates, our teams are committed daily to local stakeholders, combining their expertise and innovation capacity to combat climate change.