Producers of (renewable) energy, wholesale electricity consumer and electricity traders can benefit from a Power Purchase Agreement (PPA). As a producer, you need a buyer and balance responsible party to sell your power. This can be one and the same party. In a PPA, you arrange the sale or delivery of the green power and possibly the Guarantees of Origin (GoOs). A PPA can contain various price structures that can also benefit large business consumers and traders. These include prices linked to the SSE subsidy (Stimulating Sustainable Energy production), EPEX (European Power Exchange) Day Ahead market or by means of fixed prices which can also be established during the term of the PPA, all for a specific contract term. PZEM offers cooperation with specialists to determine the best contract structure for your situation.
A Power Purchase Agreement (PPA) is a contractual agreement between a company (the buyer) and a producer of energy, often a producer of renewable energy through solar or wind farms (the seller). This agreement lays down conditions for example the volume, price and how certain risks such as imbalance are handled. An important part of the PPA is the intervention of a balance responsible party. This party plays a crucial role in balancing energy supply and demand and in ensuring the stability and reliability of the energy network. The balance responsible party is also the link between the producer and consumer. PPAs are often long-term agreements, which reduce risks of fluctuations in electricity markets by ensuring a predictable flow of energy. A PPA provides a stable and predictable revenue stream for electricity producers, which can be essential for financing and subsidising large-scale power projects. For consumers, it offers a guaranteed supply of green energy, which can contribute to sustainability goals. For electricity traders, a PPA can be of interest through smart buying and selling.
PPA's, for whom?
Producers such as wind- or solar parks
PPAs guarantee financial stability and reduce risks for energy projects:
Guaranteed and stable revenue stream
Reduce risks by hedging them in the PPA
Facilitates project financing through certainty of revenues
Large electricity consumption companies
For companies with high electricity consumption, there are several advantages with a PPA:
Hedging risks such as price fluctuations through fixed energy prices
Supports the achievement of green energy goals and improves the ecological image through Guarantees of Origin
Long-term security of energy supply
Possibility of long-term cost savings, depending on market developments
Trading parties
A PPA offers many advantages for trading parties. Briefly, these benefits are as follows:
Ability to buy electricity at source, resell it at a profit
Influence on market dynamics by controlling part of the electricity supply
Ability to diversify and manage risk within the portfolio
How PPA's facilitate development for wind- and solar parks:
Developers of both wind- and solar parks face specific challenges, including high initial investments, market access, and volatility in energy production. Power Purchase Agreements (PPAs) provide a crucial solution to address these challenges and ensure stable revenues and growth for renewable energy producers.
By contractually securing a PPA, renewable energy producers from wind and solar parks can make their projects feasible for investment or subsidies. In addition, a PPA ensures a stable revenue stream from power generation, reducing risks and providing financial stability. The result is a guaranteed outlet for the electricity generated, which is essential for effective planning and financing of these renewable energy projects.
The benefits for wind parks
Financial security: Long-term price and volume agreements, crucial for investments and subsidies.
Risk management: Manages price and volume risks, increases stability of wind farm projects.
Market access: Guarantees market outlet for generated electricity, especially for new projects.
The benefits for solar parks
Stability in income: a predictable income stream, essential for financing and future expansions.
Insurance of sales: guaranteed sales of generated solar energy in a competitive market.
Risk reduction: hedging operational risks, by mitigating seasonal variations and weather impacts,
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FAQ's
What is the difference between a merchant and a corporate PPA?
We distinguish between several types of PPAs. Below we highlight two of them.
In a Merchant PPA, the price for the generated power is established by price developments on the market during the term of the PPA. Here, the generator does not have 100% certainty about its final remuneration. The buyer remunerates the power supplied, for example, at a Day Ahead index, which can also be an unweighted average over a certain period. The advantage for both the customer and the producer is that the price represents a realistic value. A disadvantage is that there is no certainty about income or expenditure in advance. In such a construction, however, there is the possibility of insuring (part of) profile and imbalance risks. For this, a premium is charged by the party assuming this risk.
In a Corporate PPA, the generator enters into a PPA directly with a final consumer of electricity, e.g. an industrial customer or data centre. The customer is supplied with the produced renewable power. The generator’s balance sheet responsible party will supply this power to the customer’s balance sheet responsible party on a daily basis, based on agreements. This can, for example, be based on expected production, realised production and flat production. In the PPA, the customer and producer will agree on the remuneration the producer will receive from the customer for the power supplied and the GvOs. Such a structure may be interesting for generation assets that do not receive subsidies. Price certainty can be obtained for customers for a longer period of time. In a Corporate PPA, electricity is thus purchased directly by an end user with the intervention of a balance responsible party. This need not be the fully produced electricity. A generator can enter into several PPAs for part of its production.
