As power prices continue to soar at an unprecedented rate within an increasingly volatile energy market, more and more businesses are entering into Power Purchase Agreements (PPA’s) as they face increasing pressure to seek protection from further energy price increases whilst also seeking a more sustainable long-term energy strategy.
PPA’s are complex and with different options available to businesses, we are here to guide you through everything you need to know about PPA’s and why you should consider a PPA for your business:
What is a Power Purchase Agreement (PPA)?
A Power Purchase Agreement (PPA) is a long-term agreement between an energy consumer who wants to buy 100% renewable energy and the power producer. PPA’s are usually set over a period of between 5 to 15 years as part of a legally binding contract.
What are the main benefits to a business?
There are many benefits to a business that has a PPA in place:
- It helps the business to demonstrate green credentials and achieve net-zero targets
- It improves financial security with long term price and budget certainty for up to 15 years, mitigating the risk from extreme market volatility
- With a significant price benefit compared with the wholesale market, it also generates long-term savings for the business
What PPA options are there available to my business?
Onsite Generation PPA arrangements:
PPAs can be physical where energy physically flows from generator to user. These deliver the greatest benefits. Providing renewable energy with no third-party charges, generation assets are physically installed and commissioned “behind” the metering point of an energy consumer and precisely specified to meet a site’s real-life demand and profile.
Industry best practice is to outsource PPAs to a third party who manages a project and ongoing operations.
Onsite generation plants are typically funded by the energy consumer and delivered via a turnkey solution with a trusted provider. There are a variety of physical PPA options available; Direct Wire connections and Private Wire from adjacent generating plant.
Grid Access to PPA
This is another type of physical PPA: generation assets do not directly supply an energy consumer but an agreement is made between generator and consumer to buy a set volume of energy. Electricity can be supplied through the normal network and balanced through the settlement system. This option means that generation assets may or may not be close to an energy user’s site.
How we can help: Our Net Zero Pathway tool enables you to understand how private wire and PPAs fit within your net zero mix. We can then help with planning, evaluating site options, feasibility studies, investment grade audits (IGAs), carbon emission impact reports, analysis of cost savings, Board Packs, project management, network upgrades, funding, and tendering and settlement.
Financial Power Purchase Agreements (Corporate PPA’s)
With simpler contractual arrangements than a physical PPA, financial PPA’s are a popular flexible option as it still delivers similar benefits, including green energy and energy security.
In financial PPA’s, electricity is not supplied direct from green generating plant to energy consumer. Instead, the power produced is traded on the wholesale energy market. Electricity is accessed from the grid in the usual way, which means it is still subject to the usual third party charges. Generator and consumer agree a price per kilowatt-hour, as with a physical PPA.
How we can help: We use numerous world class e-tendering platforms that connect energy consumers with 400+ greener generators, projects and initiatives globally – more options and greater choice in virtual power purchasing.
Why should I consider a PPA sooner rather than later?
PPA prices are currently below market levels and as we know, energy prices continue to rise, so now would be an opportune time to find out more. Whilst a PPA goes a long way to meet a business’s net-zero targets, it should be considered amongst a range of extra measures in a holistic green strategy. With a perfect blend, you can balance the purchase of renewable energy with on-site energy reduction measures, on-site generation and staff engagement programmes to maximise the benefits and reduce your carbon footprint whilst strengthening your green credentials.
Which UK companies are leading the way to a net-zero future with a PPA?
Amazon
Already crowned the world’s largest corporate purchaser of renewable energy in 2020, with 65% renewable energy powering their business, US e-Commerce giant Amazon is now firmly on their way to achieving its target to power operations with 100% renewable energy by 2025 – five years earlier than their original target of 2030 with the recent signing of two new corporate power purchase agreements with Danish clean energy group Ørsted for a combined 116 MW of offshore and onshore wind capacity.
An additional planned purchase of 100 MW from Ørsted’s 900-MW Borkum Riffgrund 3 offshore wind project in Germany, expected to come online in 2025 will form part of their goal to reach net-zero carbon by 2040. Click here to find out more.
Barclays
In February 2022, Barclays signed a 10-year Power Purchase Agreement with bp as part of its efforts to transition towards powering a large proportion of its electricity demands for its UK operations from fully renewable sources. As part of the agreement, Barlays has committed to purchasing up to 250GWh per year of power and associated Renewable Energy Guarantees of Origin certificates from additional new-build renewable power assets to collectively help accelerate the UK’s energy transition and create green jobs. Click here to learn more.
Whilst there are many benefits to a business with a PPA in place, switching to a PPA does require careful consideration as there is ‘no one size fits all’ formula. The options available for individual businesses are dependent on a variety of factors including the existing supply arrangement, the usage profile and the sleeving process to ensure effectiveness and maximise the cost-efficiency.
Our experts can help you to understand the market and options available, identify and select initiatives, and provide enhanced strategy support through the stages including supplier selection and sleeving within existing supply contracts. Get in touch with us today to find out more about how a PPA can benefit your business: info@consultus.com.
We have also put together a short video explaining PPAs and what they are.