A Power Purchase Agreement (PPA) is a bilateral contract that allows corporate buyers to purchase Energy Attribute Certificates (EAC) and power from a renewable energy supplier. Agreements can be designed to be flexible in order to meet the energy buyer’s needs, e.g. deals can be purely financial or include physical energy delivery; EAC’s can be bundled to the PPA price; length, security package, penalties, price and volume structure can all be fairly negotiated by the parties.

There are multiple benefits to entering into a PPA, including :

• Direct contract with renewable power project operators
• Flexibility on agreement terms and types
• Transparency of energy costs
• Contribution to sustainability targets
• Environmental commitment to customers and key stakeholders
• Enable additionality (a new power plant will be built thanks to this contract)
• •Risk allocation reflected in the deal

There are many similarities between the two structures of PPA, such as: tenor, basis risk, renewable power certification (GOs), project performance, generation profile and credit risk. What differs in the two approaches is mainly that in a VPPA there is not a physical supply of the energy but only of the EAC and the buyer pays the producer the difference between the contract price and the wholesale market price (also known as a Contract for Differences). Basically, a VPPA not only enables additional renewable capacity, but also acts as an energy price hedging tool. Customized volume and price structures can be proposed for both physical and financial contracts in order to optimize the value for the PPA partner.

The customer has the right to change the retailer depending on how open the market is. In Europe specifically, the retailer can be changed at any time (business as usual) for both options: physical PPA and financial PPA. For the former, the energy contracted in the PPA will be made available by the seller to the new retailer, while payments will remain between the original parties through a third-party agreement. For the latter, the long-term CFD structure will stay in place, while the physical supply will switch to another retailer. For other specific markets, please contact our commercial team.

A financial PPA can be a perfect price hedge if the price of the retail contract for the physical supply is indexed at the market price. In contrast, if the buyer decides to enter into a VPPA without any adjustment to its physical retail supply fixed price contract, it will be a valuable price hedge, but it cannot be considered a perfect one.

Supplier/Buyer, Supplier/Buyer Parent Company or Supplier/Buyer Guarantor (as agreed between the parties) shall provide a parent guaranty to guarantee the Supplier’s/Buyer’s payment obligations under the PPA. If the acceptable credit rating of the Parent Guarantor drops below a required level, a Bank Guarantee will be issued.

Yes. Generation from renewable energy can be sold in different ways: as generated, take or pay, or pay as consumed. The underlying volume structure can be baseload, peak-off peak, block of hours, solar or wind profile, or client load profile. Everything depends on the customer’s needs and risk appetite. 

Yes. The PPA provides a grace period for delays in COD, during which time the seller will pay delay damages. If COD is not achieved within the grace period, the buyer has the right to terminate the agreement. 

Yes. Before signing the contract, an energy assessment of the facility is done with the buyer. After the construction phase begins, a periodic construction report is shared with the buyer as well.