The ability of authorities to purchase directly from renewable energy generators has many benefits:

• Increased financial viability by working directly with generators
• Long-term security of supply from green energy
• An ability to ensure social value is maximised
• Working towards Net Zero goals
• An opportunity to maximise local spend
• A means to increase local generation in the current climate of no subsidies for small-scale renewable electricity generation
• An ability to ensure contribution to local area plans
• Greater governance over ownership and management of the renewable asset.

There are three main types of PPAs – direct, sleeved and synthetic.

Direct PPAs involve running a cable from the equipment generating the power to the location where the power will be used and do not involve the National Grid or the local distribution network.

Sleeved PPAs require the involvement of a third-party licensed supplier to deal with the transfer of the power generated by the generator via the local distribution network to the buyer. The licensed supplier will also deal with payments and any additional power required by the buyer that the generator is unable to supply.

Synthetic PPAs involve no power at all and are purely a financial instrument that provides a mechanism for payments between the parties based on the difference between an agreed strike price and that which would be available on the wholesale power market.

Direct PPAs are commonly found on rooftop solar schemes where the power is used by the building upon which the panels are installed but their widespread adoption is limited by geographical proximity between generator and buyer.

Sleeved PPAs are more common but come with the need for a buyer and generator to engage a licensed supplier and potentially a bank or finance institution.

Synthetic PPAs have been a model operating worldwide for some time but are not yet common place within the UK energy markets due in part to the complexity of the contracting arrangements. The main contracting arrangement of a synthetic PPA is a financial instrument, which does not achieve some of the benefits that authorities may be able to derive as set out above and this is examined in more detail in Appendix 3.

This report considers sleeved and synthetic PPAs rather than direct PPAs as, other than situations where an authority is placing rooftop solar generation on top of existing assets, authorities will most likely encounter situations where the location of the generation is at a distance from the authority’s assets that require electricity.

In the main, the PPAs considered in this report are likely to be from larger-scale generation (such as solar farms and wind farms) rather than rooftop solar, and although large-scale rooftop solar could take part in a sleeved PPA project, such larger-scale generation will be present in locations where connecting them directly to the authority building requiring power will be unfeasible due to costs of connection and transmission losses from distances covered from the generator to the buyer.

This report sets out a guide for authorities on the different types of power purchase agreements available whilst focusing on synthetic PPAs (and the financial instrument required under a synthetic PPA). It looks at procurement of PPAs and the issues surrounding procurement, and possible state aid complications. An overview of procurement of all types of PPA has been undertaken so that authorities can best decide which suits their needs.

Finally, the report contains a more precise review of financial instruments for authorities and their application in the purchase of renewable electricity, and provides as an example a PPA Sleeved Pool trial currently being researched by Bristol City Council, more details of which can be seen here.

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