Green power pacts result in losses for 3 Big Tech firms

CfD, a mechanism to manage risk, causes rare, short-term losses to Meta, Amazon, Microsoft

- Rituraj Baruah & Utpal Bhaskar

In a rare occurrence, India's falling real-time renewable energy tariffs are causing losses to Big Tech firms. The reason: a mechanism aimed at ensuring price stability and managing risks. Meta, Amazon and Microsoft are incurring losses on their green energy power purchase agreements (PPAs) that are based on Contract for Difference (CfD), said four people aware of the development.

Power producers and buyers agree to pricing under long-term pacts. When such agreements are based on CfD, either party has to pay the difference between the contracted and the actual price to the other. In case the market prices are higher than the agreed-upon 'strike price', the power producer pays the differential to the procurer—in this case, corporates. But if the market price is lower than the contracted price, the company has to pay the differential to the developer.

With the prices falling below ₹1 per unit last month, the tech firms that signed CfD-based long-term PPAs are witnessing an average loss of around ₹1 per unit.