What are the different types of PPA agreements?

There are several types of Power Purchase Agreements (PPA), each catering to different needs and scenarios. This blog introduces the various types of PPAs and what function they serve for those businesses seeking a more sustainable approach to energy procurement.

What is a PPA?

A PPA is typically a long-term contract between an energy producer and a buyer, often lasting 10 to 20 years, used for purchasing electricity from renewable sources. PPAs define key terms such as electricity volume, pricing, and delivery risk. They are highly flexible, allowing customisation based on the specific needs of both parties, whether through physical delivery or financial arrangements.

There are different types of PPAs including on-site, off-site, direct and indirect, physical and virtual, offering various options for managing market risks and reducing the financial burden of renewable energy projects – making them essential tools in modern energy strategies.

On-site PPAs

The renewable energy plant is located at or near the consumer’s site, directly supplying electricity without using the grid. This reduces grid congestion and avoids costs such as balancing and distribution, though it requires adequate space and can face planning restrictions.

Off-site PPAs

These do not involve a direct physical supply of electricity to the consumer. Instead, they are agreements to purchase energy from a particular generation plant and take delivery at the grid, often requiring a sleeving party such as an energy supplier to deliver energy to the consumer. Multiple consumers can offtake electricity from a single plant, providing access to technologies such as offshore wind that could not be located on a consumer’s site.

Direct and indirect PPAs

Direct PPA: A direct PPA refers to where the business contracts with a generator directly and therefore usually needs a sleeving arrangement with an energy supplier. In this case, an intermediary is essential as they handle the energy transfer from the generator to the consumer. The supplier integrates the renewable energy into the consumer’s existing supply arrangement, managing any additional energy needs and balancing risks.

Indirect PPA: Indirect is where the supplier is also the PPA counterparty, and, in this circumstance, they hold the contracts with generators separately. These structures can be simpler for the consumer, as all contracts and payments sit with one counterparty.

Virtual PPAs

Also known as financial or synthetic PPAs, these agreements separate the financial transaction from the physical delivery of electricity. They include a ‘contract for difference’, where the consumer pays the generator the difference between the fixed PPA price and the market price, supporting investment in the renewable asset without the complexity of a physical energy transfer. As with other PPAs, the contract will include delivery of Renewable Energy Guarantees of Origin (REGOs) to evidence supply of renewable electricity to the grid.

How can Amber support your PPA journey?

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

If you’d like to learn more about PPAs, you can read our latest blog: ‘Understanding PPAs’.