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 a power producer and a buyer, usually a company with high power consumption.
The typical duration of the contract is 10-15 years.
Being a bilateral contract, the PPA is extremely flexible and can be customised, as it can take various forms and adapt to the needs of the contracting parties.
Benefits for companies
PPA contracts have several benefits, as they can make a project that requires significant investment more accessible to companies and accelerate the development of renewable energy.
In particular, these are the main advantages:
Economic benefits
By signing a PPA contract, companies can save on electricity costs without having to sustain the initial investment for the construction of a facility or assume costs or risks for the proper operation and management of the facility over time
Long-term planning
By stabilising the energy price over a long period, the company is able to do long-term cost planning.
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 PPPs also include the company’s image.
Sourcing only renewable and certified green energy demonstrates in a concrete way your commitment to decarbonisation and builds an environmentally conscious reputation.
PPA OFF-SITE_
In the absence of suitable space or if there are environmental or similar constraints, it is not possible to build an on-site plant.
In this case, the producer supplies clean energy through the public grid and therefore the consumer continues to pay the general system charges and the related grid fees.
The contract will provide for the balanced purchase of a certain amount of electricity. In this way, the plant, if a new one is needed, can be located in locations with optimal characteristics, or an existing one can be used with greater flexibility.
The same plant can supply several customers, who are credited with parts of the electricity production through the respective balancing groups.
VIRTUAL PPA (SYNTHETIC PPA)_
Unlike physical PPAs, VPPAs decouple the physical flow of electricity from the financial flow.
In this case as well, producers and consumers agree on a price per MWh of electricity, but the electricity is not delivered directly from the production plant to the consumer.
This scheme is typically supplemented by a so-called ‘contract for difference’, i.e. an agreement in which the parties are required to pay additional financial compensation to the extent that the price of electricity flows differs from the bilaterally negotiated price.
Thanks to this dual payment arrangement, each of the partners is able to obtain price security.
Price security or the possibility of reducing risks in the sale and purchase of electricity are just some of the advantages of PPAs, which, combined with the constant advancement of the technologies involved in the construction and operation of generation plants, can contribute significantly to making investments in renewable energy profitable.
