PPAs Held Back by Structural Design, Not Demand — Reading CIP's Diagnosis

The framing Martin Neubert adopted on behalf of Copenhagen Infrastructure Partners — that power purchase agreements are constrained by market tension rather than absence of demand — is, when read with the discipline of someone who has watched offtake books open and close at scale, considerably more pointed than it first appears. CIP sits across hundreds of negotiation tables annually as one of the largest dedicated renewables fund managers in the world, and from that seat the bottleneck is visible not as a shortage of corporate buyers willing to sign, nor as a deficit in policy support, but as a structural mismatch between the products being offered, the procurement mandates buyers can actually execute, and the bankability tests project lenders apply before releasing committed term debt. Calling this market tension rather than a lack of demand is a deliberate move — the first phrase locates the failure inside the engineering of the offtake instrument, while the second would have located it inside commercial appetite, which is the easier story but the wrong one.

To understand what is sitting at this seam, it helps to put the conventional pipeline narrative aside. The numbers cited at industry conferences — total addressable corporate demand in terawatt-hours, names of buyers with public sustainability targets, signed letters of intent — describe the top of the funnel; they say very little about what actually clears. What clears is a contract whose tenor, volume profile, settlement basis, credit-support architecture, and curtailment allocation jointly satisfy two counterparties whose risk tolerances were never designed to meet inside the same instrument. The buyer is procuring electricity inside a corporate budget cycle, with treasury limits on contingent liabilities, internal hurdle rates that price contracted power against a forward-curve alternative, and a procurement function whose mandate rarely extends to underwriting merchant tail risk. The project lender, in turn, is sizing senior debt against contracted cash flows over a tenor sufficient to amortize a non-recourse loan, applying haircuts wherever the contract leaves a residual exposure undefined. The pattern Neubert is naming — that this gap recurs across both wind and solar, across both European and US markets — confirms that the failure is structural rather than jurisdictional.

The first axis on which the two sides fail to meet is tenor. Corporate procurement teams, even those operating under aggressive net-zero mandates, very rarely have the internal authority to sign electricity offtake beyond seven to ten years; longer durations cross thresholds that pull the contract into board-level treasury review, where contingent liability accounting and the optics of multi-decade fixed-price commitments produce predictable hesitation. Project lenders underwriting senior debt for utility-scale wind or solar, by contrast, calibrate amortization schedules against contracted revenue streams that typically need to extend twelve to fifteen years to support the sponsor's target leverage and the lender's debt service coverage requirements. The four to five year gap between what the buyer's procurement function can authorize and what the lender's credit committee will accept does not appear in any single document — it manifests as the residual tail the sponsor must either retain on balance sheet, hedge through a separate merchant exposure, or absorb through a reduced advance rate. None of those resolutions is free, and each one quietly erodes the equity returns that justified the project to its investment committee in the first place.

The second axis is the shape of the volume profile, and here the misalignment is technical enough that it tends to be glossed over in commercial summaries while doing most of the actual damage in financial models. A wind or solar plant produces what it produces — intermittent, weather-correlated, frequently negatively correlated with peak load. A corporate buyer purchasing electricity to offset its operational consumption wants either a pay-as-produced shape, which transfers the entire timing risk to the buyer's balance sheet and is therefore rejected by most procurement functions; a baseload shape, which forces the seller to firm up the production with a separate hedge or storage layer whose cost is rarely recovered in the headline price; or a fixed-volume block, which leaves both parties exposed depending on actual production versus the contracted block. Each of these structures pushes a different residual risk onto a different party, and the lender prices that residual at a level that almost never matches what either commercial counterparty believed it had negotiated. The tension Neubert names is, in part, this pricing disagreement, surfacing only when the term sheet meets the underwriting model.

The third axis is credit-support architecture, and here the gap between what looks bankable on a slide and what survives lender diligence becomes most visible. A multinational buyer with a public investment-grade rating typically signs PPAs through a local operating subsidiary or a procurement vehicle whose own balance sheet is materially weaker than the parent's. The lender's credit committee does not give weight to the parent rating absent an explicit, enforceable parent guarantee or a credit-substitution mechanism that transfers obligations cleanly upon downgrade. Buyers, in turn, resist parent guarantees because they consume corporate guarantee capacity that finance functions ration carefully across the full set of corporate obligations — leases, supply contracts, debt facilities, hedging arrangements. The negotiation that follows is rarely about the headline price; it is about whether the parent will provide a guarantee, for how much of the contract value, with what triggers, and under what jurisdictional law. PPAs that look identical at the term-sheet level diverge sharply at this layer, and the projects whose negotiations succeed are those where a credit-substitution architecture was designed before the price was discussed, rather than after.

The fourth axis, particularly visible in US markets organized around independent system operators, is the choice between hub-settled and busbar-settled price mechanics, and the basis risk that lives between the two. A virtual or financial PPA settled at a regional hub gives the buyer a clean reference price tied to a liquid forward curve; the project, however, generates and sells at its own busbar, where congestion and locational marginal price differentials can drive a basis spread that, in stressed grid conditions, has historically opened to figures large enough to vaporize the project's contracted margin. Allocating that basis risk — to the seller, to the buyer, or to a separate basis hedge whose counterparty introduces yet another credit exposure — is a structural decision that determines whether the contract clears the lender's stress case. Buyers prefer hub settlement because it is auditable and matches their procurement mandate, sellers prefer busbar because it eliminates basis exposure, and lenders are agnostic about the mechanic but unforgiving about the exposure if it is not explicitly priced and capped.

The fragility this configuration produces is not the dramatic failure of a single closing but the slow leakage of a much larger pipeline. Letters of intent that do not convert. Term sheets that bog down at the credit-support clause. Final contracts that close at smaller volumes or shorter tenors than the original development plan envisioned, forcing the sponsor either to accept a lower advance rate or to find a second offtaker for the residual — a process that adds months to the development timeline and dilutes the original economics. Across a portfolio, this leakage is invisible in any single transaction but compounds into a material gap between announced procurement commitments and capacity that has actually reached commercial operation under firm contracted revenue. The market is not failing for lack of buyers; it is failing because the offtake products being offered were designed inside one counterparty's risk frame and rejected by the other's, and the resolution of that mismatch was not engineered into the product itself.

BEIREK's Commercial Frameworks practice operates precisely on this seam. We design offtake architectures where the structural mechanics — the tenor staircase between corporate-signable years and lender-required years, hub versus busbar settlement with an explicitly priced basis treatment, credit-substitution and parent-guarantee constructs that survive the buyer's internal guarantee rationing, shape and curtailment risk allocation that does not silently flow back to the sponsor — are negotiated as a single integrated product rather than as separate clauses settled in sequence. The assumption underneath the work is that a PPA which fails diligence does so because the design did not anticipate the underwriting test; the contract that closes is the one whose mechanics were engineered backwards from what the lender, the buyer's treasury, and the sponsor's investment committee can each accept without absorbing risk they cannot price. That is the sequence the diagnosis implies and the sequence the practice runs.

The proposition that follows is uncomfortable for a sector that has organized much of its commercial energy around the buyer-pipeline narrative. If the bottleneck is not demand but structural design, then conferences celebrating new corporate sustainability commitments are tracking the wrong indicator; the indicator that matters is the velocity at which signed term sheets convert into financed projects under the terms the original investment thesis assumed. Whether the next phase of offtake formation reaches the volumes the sector has projected will depend less on persuading more buyers to sign and more on engineering products those buyers can sign without forcing the lender to reject them — a discipline that belongs not to commercial development alone, but to the seam between commercial, financial, and legal architecture where the contract is actually built.