A utility PPA is a bilateral agreement between a generator (asset owner) and an energy supplier (or other balancing responsible party).
Resource
A utility Power purchase agreement (PPA) is a bilateral agreement between a generator (asset owner) and an energy supplier (or other balancing responsible party). It is sometimes referred to as a ‘Merchant PPA’ or ‘Export PPA’.
This model could be enacted by local authorities as follows:
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Merchant PPA: Fixed PPA
Fixed PPA with licensed supplier / balancing party
The generator is paid a set p/kWh for all generationover a fixed term. The price may be flat tariff or time-of-day/season tariff.
The pass through of any embedded benefits or costs will be detailed in the PPA and should be reviewed.
Duration
- Suppliers typically offer a fixed price PPA for up to 4 years.
- At the end of this period the generator will need to enter a new PPA arrangement.
- Longer term PPAs are possible (up to 15 years) however they tend to provide lower prices, or the price is only fixed for the first couple of years and then tracks the wholesale price
Providers
- Several licensed suppliers offer fixed price PPAs.
- Generators can approach suppliers directly for quotes or via a third party (e.g., a framework or agent). PPAs can also be obtained via auction (e.g. E-power) where suppliers bid for renewable generation contracts
- Some suppliers will only fix the PPA terms shortly before the contract start date, whereas others are happy to fix further in advance.
Complexity
- Fixed PPAs are straight-forward to obtain, but the ability to dictate terms is severely limited.
- Contract terms are fairly standard and generic but should be reviewed by the generator’s legal team.
Price certainty
- Provides short-term price certainty.
- Datasets are available from specialist organisations that forecast energy prices into the future, however there is no certainty of power price outside of the duration of the PPA term.
Merchant PPA: Flexible PPA
Flexible PPA with licensed supplier / balancing party
- Similar to the fixed PPA, but the price paid to the generator tracks the wholesale electricity price, either on a seasonal, monthly or daily basis or in real time – exposing the project to different levels of power price volatility.
- The pass through of any embedded benefits or costs will be detailed in the PPA and should be reviewed.
Duration
- Suppliers typically offer a flexible price PPA for up to ~5 years.
- At the end of this period the generator will need to enter a new PPA arrangement.
- A flexible price might be part of a longer-term PPA where the price is fixed for the first couple of years.
Providers
- Several licensed suppliers offer flexible price PPAs.
- Generators can approach suppliers directly for quotes or via a third party (e.g., a framework or agent).
Complexity
- As per Fixed PPAs, Flexible PPAs are straight-forward to obtain, but the ability to dictate terms is severely limited. Contract terms are fairly standard and generic but should be reviewed by the generator’s legal team.
Price certainty
- Some PPAs include a “price floor” and a “price ceiling”.
- Flexible PPAs are wholesale market dependent, so hold greater financial uncertainty than a fixed price PPA on a short-term basis and can even result in negative pricing if positive price floors are not included.
- Datasets are available from specialist organisations that forecast energy prices into the future.
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