Power purchase agreements
Save costs and reduce CO2 with solar and wind energy.
Power purchase agreements (ppa`s) are becoming increasingly important in connection with wind and photovoltaic projects, both for projects reaching the end of the first subsidy period and are seeking follow-up offtake and, increasingly, for newly planned projects. Similarly, new areas of application for ppa`s have emerged for commercial and industrial customers as a result of achieving grid parity for electricity from wind and solar, self-imposed sustainability targets in terms of energy supply and commitments under the Paris climate agreement. For example, power procurement costs can be hedged in the long term and CO2 neutrality can be achieved. We advise and support both generators and consumers in defining strategies, brokering, pricing, contracting and concluding ppa`s throughout Europe.
PPA's in a nutshell
Power Purchase Agreements, or PPAs for short, are not a new invention. Such bilateral contracts between a generator and a buyer have existed since the early days of the energy industry. However, their importance in connection with renewable energies is growing rapidly, especially in Germany and other European countries. They open up new opportunities for the producers of electricity from renewable energy sources with regard to the marketing of electricity.
New customer groups, even beyond national borders, can be developed. But also large industrial companies are more and more aware of the advantages of power generation from renewable energy sources. By concluding a long-term PPA, they protect themselves against fluctuations in the electricity markets, can achieve competitive advantages through long-term price stability and achieve their climate protection goals.
Forms of PPA
On-Site vs. Off-Site
One form of distinction is the location of power generation. If the electricity is generated directly on site, e.g., on the consumer's company premises, it is referred to as an "on-site ppa." In this case, the electricity is physically delivered directly to the consumer. If, on the other hand, generation and consumption take place at different locations, this is known as an "off-site ppa". In this case, the public power grid is generally used to deliver the electricity from the generator to the consumer by way of balancing transmission. This usually requires a service provider, the so-called balancing group manager.
An industrial company has a suitable roof on its premises and would like to reduce its electricity bill. However, the company does not wish to erect a photovoltaic system on the roof itself, but would like to outsource the investment, project risk and operating risks. To this end, it concludes an on-site ppa, e.g. with LAOCO, which now erects the pv-system on the roof and sells the electricity generated there to the company.
Physical PPA vs. synthetic PPA
With regard to the type of delivery, a distinction is made between physical ppa`s, i.e. agreements under which the electricity is actually physically delivered from the generator to the buyer, and synthetic ppa`s as a counterpart to this. Synthetic ppa`s are characterized by the fact that there is no physical delivery of electricity - they are a financial or hedging instrument with a high degree of flexibility in terms of design. This makes synthetic ppa`s very interesting, especially for corporates, and this form is very likely to play an important role in the future.
Apart from that there are more distinctions, which we don't need to examine any further at this point.
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The devil's in the detail
PPA`s can be highly individualized. However, this flexibility also entails the risk that, for example, risks may be unknowingly assumed by one party, which can have strong financial consequences.
Practical example: A German utility that operates wind turbines in Texas and sells the electricity generated via virtual ppa`s suffered a huge loss in the triple-digit millions within a very short time due to the explosion in power market prices caused by a widespread power plant outage as a result of a blizzard with low temperatures. For a less financially sound generator, this scenario could have caused bankruptcy.
Under certain circumstances, a ppa is not just a contract of bilateral interest. For the generator, it is important during the term of the project financing that the ppa is also accepted by the bank. The latter should therefore be involved in the design phase at an early stage so as not to jeopardize the project's ability to be financed and to achieve favorable pricing and an appropriate collateral structure.
Our know-how - your success!
We help you to approach the topic of ppa`s and are your competent and reliable partner on the way from design, selection of suitable partners, price and contract negotiations to conclusion - regardless of whether you are an offtaker or generator of renewable power. We don`t want you to experience a blackout.
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Master of Sciences in Economics (Universität Konstanz)
Certified Professional for Renewable Energies Finance (Frankfurt School of Finance)
Nachdem ich 2008 zusammen mit einem Partner eine Investmentboutique für Erneuerbare Energien Assets gegründet hatte, begann eine für mich sehr spannende Reise durch die Themenfelder Projektentwicklung, Projektfinanzierung und Asset Management von Wind- und PV-Projekten in Deutschland, Nord-, Zentral- und Südamerika. Dabei habe ich viele spannende Menschen und Projekte erlebt aber auch mit zahlreichen Herausforderungen zu kämpfen gehabt. Jedes Projekt ist anders und erfordert eine maßgeschneiderte Lösung. Diesen facettenreichen und interdisziplinären Erfahrungsschatz aus über 100 Projekten stelle ich Ihnen als kompetenter und zuverlässiger Partner zur Verfügung – zum Erfolg Ihres Projektes. Gestalten wir Zukunft gemeinsam!
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