What is a Power Purchase Agreement (PPA)? Power purchase agreements (PPAs) are a type of bilateral commodity contract for the exchange of electrical energy between power producer and consumer. The term is often used to denote a special PPA category, digital or virtual PPAs, for the purchase/sale of energy, and usually involves energy generated by renewable energy sources (RES).
These sales agreements enter into effect without physical delivery, without requiring that the generator-seller and consumer-buyer (offtaker) are stationed within the boundaries of the same power transfer and distribution grid.
Who needs a PPA?
The short answer is: major electricity consumers.Energy costs have been fluctuating dramatically in recent years due to geopolitical developments, but also due to the liberalisation of power markets, and the increasing integration of stochastic generation sources. A PPA can limit the risk of high electrical energy prices to the final consumer, since the PPA allows the consumer to “lock in” a fixed energy price for a specific period of time (tenor).PPAs can also help major consumers reduce their environmental footprint. For example, if a manufacturer wants to quickly reduce its CO2 emissions using carbon offsets, it will have to use green energy. If the network does not allow for rapid development of new projects but the company needs to urgently offset its environmental impacts with green investments, it enters into a PPA for a set duration with an existing, operational energy generator. The power generating plant does not need to supply the company directly (e.g., through a private grid), as long as it is connected to a Greek power network or the network of another country participating, even indirectly, in the European Wholesale Energy Market.
How do PPAs work?
When entering into a PPA, the generated energy is not physically delivered in the same power grid, but it is subtracted from the company’s consumption, regardless of where it takes place geographically. This practice is ideal for enterprises with a large number of distributed facilities (e.g., chain stores, non-verticalised manufacturing chains).In practice, the generator diverts all the energy generated to the network in which it is located, while the company consumes electricity from the grids within the area of each of its facilities. The energy that the consumer purchases from the generator is not subtracted in the billing for total consumption, but is credited and cleared through the Energy Exchange. No matter how much the floating rate changes on the Day-ahead Market, the price agreed upon between generator and consumer remains fixed. Extra charges only include those related to performance of the PPA.
How does Velocity maximise your benefit?
Velocity customers include companies with significant energy needs. As major consumers, often of medium-voltage power, these companies not only have immediate and ongoing need for energy; they also wish to stabilise the price of energy as much as generators do. Their immediate concerns also include improving their environmental footprint, and therefore prefer to use RES-generated power.
As energy strategy consultants to these companies, we conduct PPA auctions with their participation. By creating competition through the Velocity software algorithm, we secure:
- Guaranteed uptake of generated energy
- Sale to a trusted consumer with given consumption
- Timely payment of invoices with predictable charges
- Competitive bidding between interested parties to achieve the best sales price
How do we hold auctions? Auctions are held through transparent and automated procedures executed by Velocity's customised software. Participating consumers gain access to PPAs and bid on power shares that meet their energy needs. The auction is held in real time with five-minute bidding sessions..
What information do we need from the participating generator?
If you are managing an existing RES plant or plan to deploy a RES plant, fill out the PPA expression of interest form above. Velocity team of energy strategy consultants will review your project and recommend ways to divert it to the market, based on the needs of major consumers who are more likely to be interested.
What is a Power Purchase Agreement (PPA)?