Businesses globally are increasingly adopting an innovative new ‘Direct Model’ for the procurement of renewable energy. Marko Filipovic explains what is driving this trend.

As issues abound with respect to escalating electricity prices and the Energy Security Board (ESB), and the Turnbull Government scrambles to unveil the National Energy Guarantee, more and more corporate acquirers of large-scale electricity are turning their minds to how best to procure cost-efficient, environmentally-friendly energy.

Globally, a trend is beginning to emerge whereby large corporate manufacturing and retail businesses such as Ikea, Volkswagen, General Motors and Dow Chemical have undertaken to purchase their electricity directly from offsite renewable energy generators such as solar and wind farms. This ‘Direct Model’ of procurement is a departure from commonly recognised approaches, which involve a recognised retailer acting as middleman for the procurement.

This international trend reveals the potential for a new Australian market to emerge with respect to offsite renewable energy procurement by corporate entities.

Models for offsite renewable energy procurement

The proliferation of new market structures supporting renewable energy procurement presents challenges of complexity to energy users looking for a better deal. The most commonly used model for large-scale procurement or renewable electricity generally involves a retailer acting as intermediary between the purchaser and the offsite generator, whereby the end user enters into a Power Purchase Agreement (PPA) with the retailer.

The difference between the ‘Intermediate Model’ and the ‘Direct Model’ can be defined as follows:

  • Intermediate – An independent generator sells renewable energy through retailers to specific end users. This involves a PPA between the generator and the retailer.
  • Direct – This involves an end user establishing a PPA with the generator at an offsite location, in parallel to the overarching retail contract.

The Intermediate Model

The Intermediate Model is often considered to be straightforward from the end user’s perspective, given that the complexity of procuring generation resources remains with the retailer. However, there remain a number of limitations with this approach, namely:

  • End users need to be able to trust the retailer to faithfully execute the renewable energy procurement terms of the PPA.
  • Smaller retailers often require additional credit support through end user guarantees. As a result, the Intermediate Model may only be available through large electricity retailers who are less likely to offer economically attractive solutions within a constrained market.
  • End users need to be locked in with a single retailer in order for the retailer to adequately balance supply and risk management costs.
  • Long‐term retail agreements may provide electricity retailers with unreasonable pricing power over elements of an end user’s electricity costs.

The Direct Model

Under the Direct Model, the primary feature is that the PPA is between the generator and the end user. A direct arrangement may either be decoupled from the electricity retailer that is managing physical supply and settlement, or it may see a role for the retailer with respect to pass-through of generation value, balancing supply, and the management of risk associated with renewable energy intermittency.

For end users, this approach offers considerable value from a marketing and communication perspective. Furthermore, in contrast to the Intermediate Model, the Direct Model does not require a ‘back-to-back’ retail agreement matching the terms of the PPA. As such an end user’s ability to change retail suppliers during the PPA contract term is far greater, provided there is an availability of other retailers providing acceptable terms should generation value pass-through be desired. A mature market for these services will therefore be required to enable this flexibility to a useful degree.

Smaller electricity retailers are particularly amendable to this approach. And it is generally more suitable to larger users with a certain level of capability. The Direct Model has also shown that it can provide the customer with access to competitive Large Scale Generation Certificate (LGC) pricing on top of saving on retail prices.

A very recent example of the use of the Direct Model involves the University of NSW (UNSW), with Maoneng Australia as the solar generator, and Origin Energy as the retailer. The 15-year solar supply agreement with Maoneng is the first of its kind in Australia – bringing together a retailer, developer and corporate – and will allow UNSW to achieve a goal of carbon neutrality on energy use by 2020.

The PPA between UNSW and Maoneng will see UNSW purchase up to 124,000 MWh of renewable energy per annum from Maoneng’s Sunraysia Solar Farm near Balranald in south-western NSW. A three-year retail firming contract was also signed with Origin, as the electricity retailer, to manage the intermittency of solar production.


Australia is facing electricity cost pressures and the need to meet environmental objectives, and is likely to replicate the US experience, resulting in the dramatic growth of offsite renewable energy procurement by corporations and institutions, who are already very interested in this avenue.

The Direct Model has the potential to drive new investment in renewable energy and accelerate Australia’s transition to a cleaner energy supply. It also delivers a host of benefits to the end users, including stable electricity prices and lower costs, as well as a reputation for leadership, sustainability and innovation.

Marko Filipovic is a Principal at law firm Macpherson, Kelley where he specialises in the energy sector and advises on the relevant modes, structures and agreements underpinning it.