Corporate Buyers for Wind and Solar Face Contracting Cliff Ahead
The wind and solar contracting market has experienced an intriguing year, characterized by a significant capacity increase that hasn’t been seen for several years. However, this surge has been accompanied by a notable trend of fewer, larger deals, coupled with some groundbreaking innovations.
The slow pace of activity has hindered the federal government’s ambitions to achieve an 82% renewable energy target by 2032. Yet, it appears a dramatic shift may be on the horizon as a potential “contracting cliff” approaches. This cliff is anticipated due to the expiration of the renewable energy target and the introduction of substantial new energy demands.
Record-Breaking Year for Corporate Deals
The Business Renewables Centre Australia unveiled its latest annual corporate Power Purchase Agreement (PPA) report during the All Energy conference held in Melbourne. The report signifies that 2026 is set to be a landmark year for corporate deals, boasting a total of 6 GW.
Much of this capacity is attributable to the 3 GW needed by Australia’s largest energy consumer, the Tomago smelter, which will source energy through the government-owned Snowy Hydro. However, as of now, suppliers of wind and solar energy have yet to be secured.
This year has also been marked by innovative agreements, including a pioneering deal between data centre operator Firmus and the energy trading company Gunvor, as well as Rio Tinto’s PPA with Yindjibarndi Corp’s Jinbi solar farm.
Notably, this year sees a majority of contracts incorporating battery storage solutions. Chris Briggs, CEO of the BRCA, emphasises, “We can confidently assert that we have entered the era of firmed renewables and PPAs.”
Market Dynamics and Future Uncertainties
Briggs points out that the current dearth of agreements stems from a significant gap between the prices sought by wind and solar developers and what buyers are willing to pay, especially in a climate of low wholesale prices and uncertain future markets.
However, he suggests that shifts may soon emerge, as ongoing uncertainties surrounding coal plant closures are affecting market expectations. “The gap persists between the prices buyers want and what sellers are asking. Buyers are grappling with current and projected pricing,” he noted.
In light of impending policy shifts, including new regulations requiring data centres to source their own renewable energy, Briggs indicates that buyers are at a crossroads. They must decide whether to enter contracts within this unpredictable landscape or risk being overwhelmed by a surge of other buyers as the 2030 deadline approaches.
The Impending Contracting Cliff
Gilles Walgenwitz, head of energy markets at ERM, cautions that the “contracting cliff” identified by Briggs and the BRCA could be more pronounced than anticipated. He highlights that by 2030 or 2032, there is an expectation of 62 terawatt hours of annual energy that will need to be contracted.
This projection includes 29 TWh from retailers, 9 TWh for Tomago, approximately 12 TWh from data centres, and a further 17 TWh from other corporations focused on reducing emissions, alongside 6 TWh from contract renewals.
Walgenwitz also remarks that the supply may be more limited than the current pipeline suggests. Out of 50 gigawatts of renewable energy capacity planned, only 21% has been fully committed according to (AEMO)’s Electricity Statement of Opportunities, indicating a potential tightening in the market.
Additionally, the emergence of data centres in the contracting space could further alter the dynamics. These enterprises, eager to secure contracts swiftly due to regulatory pressures, may be willing to offer higher than typical prices. This is because the revenue obtained from their computational services often far exceeds the electricity costs.
Given these developments, Walgenwitz advises those with targets set for 2030 not to delay strategising until 2029, as it may prove too late and could end in inflated costs.
