SECTION 1 – SUMMARY DEFINITIONS SOURCES

Renewable Power Purchase Agreement (PPA) Course

Section 1 – Introduction to Renewable Power Purchase Agreement’s

Summary

Video 1 – What is a Power Purchase Agreement? Why are they used?

A PPA is an agreement between the owner or developer of an asset that produces power, and a
company who wishes to buy the power from the asset.

The main advantage to the asset developer, is that a contractual PPA will give them a guaranteed buyer
for their output, and subsequently make it easier for their project to receive the financing it needs to
build the asset

The main advantage to the buyer of the output is that they receive a guaranteed level of output over
a number of years at a set price (generally cheaper than what the current Power price would be, or is
forecast to be in the future).

Video 2 – Types of Power Purchase Agreements

There are ‘on-site’ and ‘off-site’ PPA’s. ‘Off-site’ PPA’s tend to cover larger scale renewable assets.

There are three main types of off-site PPA’s:

Physical PPA where the Buyer and Seller exchange money for physical delivery of electricity.

A Sleeved PPA which is the same as a Physical PPA, however, it also involves a 3 rd party electricity
supplier.

A Virtual PPA does not involve the exchange of electricity and is more like a financial instrument.

Video 3 – PPA Volume

PPA Volume can be delivered in a number of ways:

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As-consumed where the volume of electricity in the PPA depends on how much energy the Buyer
consumes;

As-generated where the volume of electricity in the PPA depends on how much energy the renewable
asset produces; and

Baseload where a pre-defined level of electricity is agreed and is provided each day of the contract.

Video 4 – Renewable PPA Price

Sellers consider two main variables when determining the PPA price they will ask for: cost of building
the asset; and the expected investment rate of return.

Buyer’s consider two main variables when considering the PPA price they will pay for: i.e their view
of future power prices and power requirements; and understanding the full value of a Renewable
PPA.

Video 4 – Market Players and Trends

The PPA market is growing on a global level (expected value to increase from $15bn in 2021 to $400bn
in 2031). While the market has been dominated by service companies such as Amazon and Microsoft,
manufacturing companies are beginning to pursue PPA’s, with the main drivers on the Buyers behalf
being procuring green renewable energy. The Sellers of PPA’s are varied, with large multinational
companies and state-owned companies alike very active in the PPA market across a number of
different countries.
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Definitions

As-Consumed Power Purchase Agreement – this requires the asset developer (the seller) to meet the
exact needs of the Buyer, who expects to receive electricity from the renewable asset to match their
usage of electricity.

As-Generated Power Purchase Agreement – the buyer takes all of the electricity produced from the
renewable asset.

Baseload-Power Purchase Agreement – Baseload is a term commonly used in electricity trading and
refers to a full day’s worth of electricity i.e. electricity supplied over a 24 hour period. In terms of a
PPA, this indicates that the same level of electricity will be supplied 24 hours a day for the full duration
of the contract.

Buyer – an organisation who buy the power produced from an asset.

Electricity Supplier – the company who supply the electricity to your home.

Off-Site Power Purchase Agreement – the power is produced at a different location to where it is
consumed.

On-Site Power Purchase Agreement – the power produced by the renewable asset is consumed at the
same site as the asset itself.

Physical Power Purchase Agreement – the Buyer receives the electricity produced from the renewable
asset. The Seller is part of an organisation who has an electricity supply business and they can
therefore supply the electricity to the buyer as well as being the ones who produce the electricity.

Power – Power is another widely used term for electricity, and in this context the two words are
interchangeable.

Power Purchase Agreement (PPA) – A PPA is an agreement between the owner or developer of an
asset that produces power, and a company who wishes to buy the power from the asset.

Renewable Certificates – Renewable assets across many different countries have the benefit of
receiving renewable certificates for each MW of electricity they produce. Many large scale users of
electricity are required to buy these renewable certificates to offset their electricity usage.

Seller - the renewable asset developer or owner who sell the power produced from their asset.
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Sleeved Power Purchase Agreement – similar to Physical PPA’s with the difference here that the asset
developer is not part of an organisation who is also a electricity supplier. In this instance, a 3 rd party
becomes involved (i.e. an electricity supplier). The Buyer and he Seller will still negotiate and construct
the PPA as standard, however, they will then transfer the electricity supply obligations of the
agreement to a 3rd party electricity supplier.

Virtual Power Purchase Agreement – A virtual PPA is different to a physical PPA in that there is no
physical exchange of electricity. The Virtual PPA is considered more of a financial instrument, where
the Buyer of the PPA guarantees a price for the electricity produced by the renewable asset but does
not use or take physical delivery of the electricity. Under a Virtual PPA, the Seller will still have to sell
the electricity to other market participants. The Buyer of the PPA will still need to buy electricity from
other market participants.
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Sources

Covestro signs major renewable energy supply contracts with Chinese producer CGN. Link: Covestro
signs major renewable energy supply contracts with

Telstra underwrites Australia’s biggest wind farm in PPA with Ark Energy. Link: Telstra underwrites
Australia's biggest wind farm in PPA with Ark Energy | RenewEconomy

Ørsted and Amazon expand cooperation with additional corporate power purchase agreements. Link:
Ørsted and Amazon expand cooperation with additional corporate power purchase agreements
(orsted.com)
Transparency Market Research: Power Purchase Agreement Market. Link: Power Purchase Agreement
Market | Global Industry Report, 2031 (transparencymarketresearch.com)

S&P Global Commodity Insights (Ankita Chauhan): Global corporate clean energy procurement crosses
50 GW with Asia as the largest region in 2022. Link: Global corporate clean energy procurement crosses
50 GW with Asia as the largest region in 2022 | S&P Global (spglobal.com)