A Power Purchase Agreement (PPA) with a wind farm or solar farm is a major agreement. It enables a farm to reach Financial Close with lending institutions, such as banks. The PPA guarantees the revenues and the cashflows for the renewable energy assets and the credit worthiness of the users is thus vital.
The banks seek long-term predictable cashflows and this is exactly what industrial end-users can offer. Historically utilities were in between both parties: retailing the power in shorter term contracts. Making a direct PPA provides major advantages, but requires a solid realisation of the five different building blocks which make up a direct PPA. We will discuss each of the building blocks on separates webpages one-by-one.
The building blocks are:
- Long-term grey-power contract. Explaining the pricing structure, the duration.
- Price guarantees. Explaining the need for price guarantees, the value they bring, the costs, the challenges of quantification and the risk management aspects
- Green certificates, or so-called Guarantees of Origins. Depending on the regional market there may be a specific document that makes the power green. Explaining the need, the advantages, and the pricing difficulties.
- Explaining the challenges of intermittent production, the impact on the end-user, the portfolio of the end-user, the unpredictability of the production, the costs, the optimisation potential around short-term (minutes) markets, the actions possible such as dispatch down and finally the portfolio services needed.
- The number of offtakers. Explaining the key options. Explaining the challenges, risks and advantages of one offtaker. The challenges and chances to have PPAs in lots or to have multiple offtakers. The possibility to have joint- or grouped offtakers.
For each block of the PPA we will explain the challenges and possible solutions for contracting.