Understanding Power Purchase Agreements (PPAs)

In today’s rapidly evolving world, navigating energy contracts can be confusing. In this blog, we outline all the basic components of a Power Purchase Agreement (PPA), including what they are and why they are increasing in popularity. 

What is a PPA?

A PPA is typically a long-term contract for the supply of renewable energy between an energy generator and a consumer. However, this is not always the case and the range of PPA-type products available in the market is continuously developing. PPAs may outline the purchase and sale of a specified amount of energy, or alternatively may be based on the actual production from the renewable generator (e.g. a solar array or wind farm).

PPA contracts can have a fixed price for the energy sold or may involve index-linked inflation or track market prices. By locking in a fixed price for energy over a period (typically 10 to 20 years, but less in some cases), PPAs help businesses mitigate exposure to volatile energy markets and can support the transition to cleaner energy.

It is important to consider that PPAs are highly specific agreements that require careful planning to achieve the best outcomes for all parties involved. They can serve as a highly effective solution for businesses needing to meet their renewable energy objectives.

What are the benefits of PPAs?

PPAs offer numerous advantages to businesses seeking to improve sustainability credentials and can help establish necessary steps towards Net Zero objectives. They can offer long-term price stability; by fixing the energy price for several years, businesses can hedge against market fluctuations. PPAs can also be an effective tool for meeting sustainability goals set by businesses, as they support the development of new renewable energy projects.

What are the challenges associated with PPAs?

While PPAs have many benefits, they also come with certain challenges. They can be complex to negotiate as they are often customised agreements, requiring extensive negotiation and legal oversight. Something which should be considered is that in some cases long-term contracts can be disadvantageous if market prices change unfavourably. As renewable energy supply tends to be intermittent, it is important to carefully consider the costs involved with accurately matching energy generation with consumption.

How are PPAs a powerful tool for businesses?

PPAs, including solar PPAs, are powerful tools for businesses aiming to secure a sustainable and stable energy future. By understanding the different types of PPAs and their respective benefits and challenges, businesses can make informed decisions that align with their financial goals and environmental commitments. If you’re considering a PPA for your business, it’s crucial to analyse your specific needs and consult with experts to tailor the best solution. With the right approach, PPAs can provide a pathway to a greener and more resilient energy strategy.

How can Amber help?

We work with businesses to connect them with truly renewable energy, and one of the ways we can do this is through exclusive corporate Power Purchase Agreements (PPAs). Please get in touch to find out how we can support.