POWER PURCHASE AGREEMENT (PPA)_
The acronym PPA stands for Power Purchase Agreement.
It is a long-term, bilateral power purchase agreement with a fixed price between an electricity producer and a buyer, usually a company with high energy consumption.
The typical duration of the contract is 10-15 years.
As it is a bilateral contract, the PPA is extremely flexible and customizable, as it can take various forms and adapt to the needs of the contracting parties.
Advantages for companies
PPA contracts have several advantages, from the possibility of making a project that requires significant investment more accessible to companies to the possibility of accelerating the development of renewable energy.
In detail, these are the main benefits:
Economic benefits
By signing a PPA contract, companies can save on electricity costs without bearing the initial investment of building a plant or taking on the costs or risks of running and managing the plant smoothly over time
Long-term planning
By stabilising the price of energy over a long period of time, the company can plan for long-term costs.
Sustainability
Using renewable energy for consumption has a positive impact on the environment and reduces the company’s carbon footprint.
Improved corporate image
The benefits of PPA also include the company’s image.
The exclusive procurement of renewable and certified green energy demonstrates in a concrete way the commitment to decarbonisation and gives the company an environmentally conscious reputation.
PPA OFF-SITE_
Due to a lack of suitable land or due to environmental regulations or similar restrictions, it is not possible to build a plant on site in some places.
In this case, the electricity trader supplies clean energy via the public grid, and the consumer continues to pay the general grid charges and the associated grid fees.
The contract provides for the balanced purchase of a certain amount of electricity. In this way, if a new plant is required, it can be built in a location with optimal characteristics or an existing plant can be utilised with greater flexibility.
One and the same plant can supply several customers, who are credited with parts of the electricity production via the respective balancing groups.
VIRTUAL PPA (SYNTHETIC PPA)_
In contrast to physical PPAs, VPPAs decouple the physical flow of electricity from the financial flow.
Here too, producers and consumers agree on a price per MWh of electricity, but the electricity is not delivered directly from the power plant to the consumer.
This arrangement is usually supplemented by a so-called “contract for difference”, i.e. an agreement in which the parties agree to pay/receive financial compensation if the price of the electricity flow differs from the bilaterally negotiated price.
Thanks to this double payment arrangement, each of the partners can achieve price certainty.
Price certainty or the ability to reduce risks when selling and buying electricity are just some of the benefits of PPAs which, combined with the continuous development of technologies for the construction and operation of generation plants, can significantly contribute to making investments in renewable energies worthwhile.
