Rapidly rising electricity prices and shortages on the market are leading companies to increasingly secure access to their own green electricity. With the increased demand for renewable energies, interest in so-called Power Purchase Agreement (PPA) contracts is also growing.
What is a Power Purchase Agreement ?
Power Purchase Agreements (PPAs) are long-term electricity contracts between electricity producers and electricity consumers or electricity traders. A characteristic feature of PPAs is that they are linked to a specific wind or solar farm from which the generated energy must come.
Contribution to the energy transition
By opting for a power purchase agreement based on a new wind or solar farm, the company contributes directly to the promotion of the expansion of renewable energies and makes a significant contribution to reducing CO2 emissions in the electricity sector.
Promoting Power Purchase Agreements
Despite the boom in PPAs, the choice of a PPA within the European Union is limited to a few countries and large companies. Especially since existing solar and wind parks were financed by the expiring EEG subsidies. To further promote the current trend and to counteract the increase in electricity prices, the European Union has decided to minimise existing administrative, technical and financial barriers and to promote PPAs
Concrete design of Power Purchase Agreements
When concluding a PPA, there are significant differences in terms of generation technology (wind, solar, new or old plants) but also in terms of pricing and contract duration. There are different types of Power Purchase Agreements, mainly physical and synthetic PPAs. If there is physical proximity between the plant operator and the electricity buyer, this is obviously a physical PPA. In contrast, with virtual or synthetic PPAs there is no physical proximity, but the electricity is supplied virtually. The green electricity is traded on power exchanges, so the electricity producer and buyer do not necessarily have to be in the same grid region.
Regarding the duration of PPA contracts, it is common for them to have a relatively long term of 10 to 15 years. A long contract term secures financing for the suppliers, especially in the case of new plant PPAs.
What can companies do?
Long-term PPAs can help companies better manage their energy costs while meeting decarbonisation targets. Together with service providers such as South Pole, companies can develop and implement effective renewable energy procurement strategies. To do this, SouthPole assesses internal parameters, consults with internal stakeholders, and identifies the most appropriate PPA procurement option for companies. More information can be found here or contact us here.