Nestlé signs UK offshore wind power purchase agreement with Orsted

London — Nestlé UK signed a 15-year power purchase agreement to buy 31 MW of output from Orsted's 573 MW Race Bank offshore wind farm off the UK east coast, the counterparties said Monday.

As of May 1, the food and beverage company will buy 125 GWh/year of green power from the wind farm, covering 50% of its UK power needs. No price was put on the deal.

"The agreement, along with Nestlé UK's already existing PPAs, secures that all of Nestlé UK's consumption is covered by PPAs from renewable energy backed by certificates," the companies said.

For Orsted, the deal reduces merchant power exposure, it said.

Race Bank, commissioned in 2018 off the north Norfolk coast, qualifies for 1.8 Renewable Obligation Certificates (ROCs) per MWh generated, but also relies on wholesale power prices for income.

"Large corporations are increasingly taking climate action by sourcing green power, thereby making important contributions to the demand for renewable energy," Rasmus Errboe, senior vice president at Orsted Offshore, said.

The deal with Nestlé UK is Orsted's second corporate PPA in the UK, following a 23 MW agreement with Northumbrian Water, signed in February 2019, again involving Race Bank.

In December 2019, Orsted signed a 100 MW PPA with Covestro for 100 MW of the output from the Borkum Riffgrund 3 offshore wind farm in Germany.

European offshore wind developers seeking PPA counterparties on the Zeigo platform required around GBP40-50/MWh ($49.72-$62.15/MWh) on average through Q1 2020 in order to move to financing.

Meanwhile, ROC-accredited generators fear values in the current compliance period from April 1 could be hit by the coronavirus pandemic.

For RO compliance period 19, to end-March 2021, suppliers in England and Wales must source 47.1% of their energy from RO-accredited generators, like Orsted, or pay a buyout price at the end of the period.

The buy-out price for the 2020-21 obligation period was set in February at GBP50.05/ROC.

If UK electricity demand continues to bump along 15%-20% below last year's levels for a number of months, the market could be flooded with surplus certificates, driving the value of ROCs down for participants already feeling pain from lower wholesale power prices, hence the benefit of signing power purchase agreements for multiple years.