Supported by CBAM.Clarion.Engineer
Cross-border renewable electricity contracts must meet specific legal and evidentiary requirements to qualify for installation-specific actual emissions under the EU Carbon Border Adjustment Mechanism (CBAM). The distinction between a direct power purchase agreement (PPA) and a tripartite arrangement can determine whether an electricity importer can use actual emissions values instead of the applicable default values.
Under the current CBAM framework, default values remain the standard approach for imported electricity unless all conditions for using installation-specific actual emissions are satisfied. These include a qualifying physical PPA relationship, compliance with the relevant network requirements, a generating installation below the 550 g CO₂/kWh fossil-fuel-origin emissions threshold, firm electricity nominations matched with production in periods of no more than one hour, and independent verification supported by at least monthly interim evidence.
Contractual requirements under the current implementing rules
Commission Implementing Regulation (EU) 2025/2547 establishes more specific requirements for demonstrating the contractual relationship behind physical electricity supplies. A qualifying physical PPA may be concluded directly between the electricity producer and the relevant authorised CBAM declarant. Where an intermediary participates, the contractual arrangement must be supported by one coherent three-party agreement covering the relevant physical supply.
A sequence of bilateral resale agreements does not, by itself, establish the same evidentiary chain. This distinction separates the contractual structures recognised under the current implementing rules from conventional wholesale trading arrangements, in which electricity may pass through multiple bilateral transactions before reaching an EU importer.
A direct physical PPA between the producer and the authorised CBAM declarant provides the clearest contractual link. Where a trader remains between them, the three-party structure must establish a coherent relationship for the relevant supply rather than relying solely on a chain of separate resale contracts.
Evidence requirements extend beyond electricity delivery
Contractual arrangements must support the annual compliance cycle, including activities that continue after the physical electricity transaction has been settled. Data-access provisions, record-retention obligations, cooperation with verifiers and rights to correct information need to remain effective after delivery, contract termination or a change of service provider.
The timing of CBAM declarations makes these provisions commercially relevant. The physical electricity trade may have been completed well before the corresponding declaration and supporting evidence are finalised, requiring the parties to preserve access to records and the ability to address discrepancies.
Implications for steel and aluminium procurement
Steel and aluminium producers may rely on traders to aggregate renewable generation and manage electricity balancing. Although renewable PPAs can retain their commercial value for industrial consumers, a conventional portfolio resale should not automatically be treated as preserving eligibility for actual-emissions treatment of imported electricity or as reducing the metal product’s current CBAM liability.
The contractual structure therefore needs to distinguish between the commercial benefits of renewable electricity procurement and the specific conditions governing its treatment under CBAM. The existence of a renewable electricity supply arrangement alone does not establish that all requirements for installation-specific actual emissions have been met.
Financing and operational controls for PPA structures
Lenders need to establish whether a PPA premium remains supportable after the contractual arrangement has undergone a review against the applicable legal requirements. Where project debt-service assumptions depend on that premium, the direct or tripartite structure should be assessed before financial close, rather than after the project enters commercial operation.
The contract review should also include an operational test involving commercial, scheduling, compliance, treasury and engineering teams. These teams should trace a sample transaction through electricity nomination, invoicing, evidence closure and fallback settlement before the product is released. This process tests whether the contractual terms can be implemented across the relevant operational and compliance functions.
For contract managers, the release decision should depend on whether the parties, ownership-title flow, payment flows, data rights and fallback formula can be reconciled consistently without relying on informal assumptions.
Proposed EU reforms remain separate from current law
A separate reform proposal, COM(2025) 989, would materially change the treatment of electricity under CBAM. The proposed changes include revisions to the methodology for electricity default values and to parts of the conditions governing the use of actual values.
The proposal would also broaden the concept of physical PPAs to include arrangements involving intermediaries and modify the framework governing congestion and electricity nominations. These changes could alter the contractual structures relevant to electricity importers if adopted.
The legislative process has advanced through the adoption of a Council negotiating position on 12 June 2026 and a European Parliament position on 15 September 2026. However, the proposal remains under interinstitutional negotiation and has not become enacted law. Its potential provisions should therefore remain separate from current-law pricing and compliance assumptions.
For financing and contract administration, the central requirement remains consistency between the contractual transfer of title, payment obligations and the evidence supporting the electricity’s CBAM treatment.
