Power Your Business with Clean Energy through Power Purchase Agreements

If you're looking to integrate sustainable energy solutions into your energy management plan, Power Purchase Agreements (PPAs) offer a great opportunity to drive decarbonisation without the need for significant upfront capital investment in infrastructure. However, securing these long-term contracts requires expertise and careful handling.

Our expert team will support you throughout the entire PPA process. Following a comprehensive PPA assessment, we’ll customize a plan that meets your energy requirements and sustainability goals, making the renewable energy procurement process seamless. From vendor selection to contract negotiation, we’ll manage all the details, so you don’t have to.

The first step is a PPA assessment, where our advisors capture your energy needs, sustainability objectives, and organizational priorities. After conducting thorough research, we’ll provide:

A no-obligation, detailed market analysis
Guidance for aligning internal stakeholders
A financial evaluation of relevant offers
A strategic plan with timelines and milestones for advancing the project

Understanding PPAs (Power Purchase Agreements)

PPA Structures: PPAs come with various contract structures and hedging mechanisms that distribute energy risks between the buyer and the seller. The most common options include pay-as-produced, annual, and monthly base load agreements. In mature PPA markets, the availability of pay-as-produced contracts is decreasing, while demand for base load PPAs is on the rise due to concerns about market volatility.

Sourcing PPAs: Renewable project owners typically initiate the process through a request for proposal (RFP) or quotation (RFQ), inviting energy buyers to submit purchase offers. For large buyers like Google, private tenders or auctions are often used, where selected parties bid against each other in multiple rounds.

Comparing Offers: Initial offers, often referred to as Term Sheets, provide basic commercial terms like price, contract length, and structure but may lack detailed information. These offers can vary significantly, depending on the contract structure, inclusion of costs, and pricing basis. Comparing offers requires careful analysis of these differences.

Negotiation: While buyers and sellers may initially agree on a rough price, contract negotiations typically take between 6 to 12 months. A successful negotiation requires addressing multiple commercial points, and the PPA checklist at the end of this article outlines 10 critical items you shouldn't overlook.

Once the agreement is signed, it can significantly improve the chances of securing financing, with the project moving forward toward a designated Commercial Operation Date (COD).

Post-Signing Considerations

Even after signing a PPA, energy asset management continues. PPAs often span 10 years or more, but the associated asset may last 30 years or longer. Therefore, ongoing market monitoring is essential to answer key questions such as:

When should a new contract be negotiated?
Should you renegotiate?
How much market risk do you face?
What is the current value of your asset?

Because PPAs are complex financial contracts, it’s crucial to actively manage them and track their value over time, adjusting for market fluctuations. This proactive management strategy helps protect the value of the agreement in volatile energy markets.

Key Points to Keep in Mind During PPA Negotiations:

Commercial Structure: The type of PPA structure (pay-as-produced, annual base load, etc.) impacts how energy risks are shared. Understanding these risks is essential to a successful negotiation.
Energy Risks: Price, liquidity, volume, profile, and balancing risks should all be carefully considered. Risk mitigation strategies, like insurance or optimized PPA structures, can help manage these uncertainties.
Contract Duration: Consider the length of the fixed price term, renegotiation timelines, and any grace periods in case of production delays.
Credit Risk: Ensure that you evaluate the creditworthiness of both parties to avoid payment issues.
Performance Guarantees: Clarify under performance clauses and how any production shortfalls will be addressed.
Termination Clauses: Understand the conditions under which the contract may be terminated early, including potential penalties.

Conclusion: PPAs have become essential tools in renewable energy due to the decline in government subsidies, offering investors and lenders the security of a guaranteed, long-term revenue stream. However, given their complexity, a deep understanding of energy risks and contractual details is critical. By working with our team of experts, you can navigate the PPA process with confidence and maximize the potential of your renewable energy projects.

mike murphy

Solar Dynamics

Environmental Services

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