PPA agreement - what are they and why are they included?
The RESOS platform operates on the basis of the PPA (Power Purchase Agreement). This is a much simpler and more financially advantageous solution for green energy producers than participation in auctions. This is also felt by companies purchasing green electricity.
What is the solution?
From the text you will learn:
- What are the PPAs and who does?
- What are the benefits of the PPAs?
- What are the types of PPA contracts?
- How can OZEOS help with PPA?
- What is POB and what role does it play?
- RESOS platform supporting the conclusion of PPAs
What is a PPA?
The PPA (Power Purchase Agreement) is a bilateral electricity supply contract. It is usually concluded between the renewable energy producer and the buyer, which is the company most often (then it is cPPA - corporate Power Purchase Agreement). The contract defines the price, quantity and all conditions for the sale of energy, and it is characterized by the fact that it is concluded for a long period - usually it is up to 10 - 20 years. Apart from energy supply alone, PPAs can also finance the construction and operating costs of energy sources.
The PPAs are therefore a long-term contract concluded directly between the producer of green energy and its recipient. This is a very stable form of green energy supply right from the source.
Why is there a PPA agreement?
The main advantage of the PPAs is the guarantee of stability. For the buyer it is price stability and constant energy supply, and for the seller it is a long-term security of receipt and, consequently, a constant income. Banks are more willing to grant loans to suppliers with PPAs signed, as this is their financial security.
The signing of an agreement for the purchase of green energy through PPA can be considered to be a kind of investment in RES, without the need to allocate funds to photovoltaic panels or wind farms.
The PPAs are therefore concluded in order to have long-term collateral for the receipt or sale of electricity, which is very beneficial, for example, if investment financing needs to be secured or if there are sharp price changes in the energy market.
What are the PPA types?
Although the classification is not so simple, due to the great freedom to conclude contracts, there are several types of PPAs. The two most popular of them are physical and financial.
Physical PPA - It concerns the transmission of electricity through the same energy network in which they are both the recipient and the supplier. The amount and price of energy that the recipient will receive shall be determined. The On-site type is distinguished, where the proximity of the energy source (e.g. at the company's premises) and Off-Site is required, where the transfer takes place through the supplier's transmission line.
Financial PPA (also referred to as synthetic or virtual) - it is a financial contract linked to a physical PPA agreement but not including energy supply. The customer sets a price for energy in the contract, but does not physically reach it. It pays for the energy produced, hoping to be sold on the market at a higher price, by the supplier. In Poland, financial agreements constitute the vast majority of the PPAs.
| cPPA with physical delivery | cPPA virtual (financial) | |
|---|---|---|
| Is there a sale of electricity? | Yes | No |
| Duration of contract | Will of the parties | Will of the parties |
| Is trade balancing of energy needed? | Yes | No |
| Do you need a Trading Company in this process? | Yes | No |
| Will trade balancing costs arise? | Yes | No |
| Does the buyer receive guarantees of origin? | Yes | Yes |
| Is there a need to buy the missing volume? | Yes | No |
| Does the recipient have a financial account with the manufacturer? | Yes | Yes |
| Is there a risk of production volume? (less increased energy production) | Yes | Yes |
| Does the PPAs depend on stock prices? | No | Yes |
Energy mix
The energy mix is an individually selected proportion of different energy sources for a given entity. Knowing both the demand for electricity and the scale of its production capacity by farms (on an hourly basis), the RESOS platform creates a matching energy mix.
By building an individual energy mix, we focus on making it contain as much energy as possible from RES. On the basis of this, an agreement is created between the buyer and the seller of electricity.
What is POB and what role does it play?
Each PPA requires a link to the trade balance process. This is the matching of the electricity demand with the energy supplied by the seller under the PPAs. This process shall be operated by the Balancer Authority (POB).
Balance is important because the production of renewable energy, such as wind or solar, may be subject to atmospheric conditions, which means that the amount of energy supplied to the recipient may change over time.
The agreement for the trade balancing service is separate from the contract for the purchase of green energy in the PPA contract and is conducted in a separate mode. The balancing agreement occurs only after the conclusion of the PPAs between the Manufacturer and the Client.
The POB service is available in two variants:
- Energy balancing based on the next day market (SPOT). The agreement can be concluded for an indefinite period, as its main assumption is the daily trading of electricity on the energy exchange. The customer bears the risk of volatility of electricity prices in daily SPOT quotations. This option in the last year was characterised by lower prices than traditional fixed price offers.
- Offer a fixed price subject to the customer's cPPA contract. In this option, the Customer does not bear the risk of daily volatility of prices on the electricity exchange, as this risk is transferred to POB, which calculates them in its offer a fixed price. In the current realities in Poland there is no possibility to conclude a contract longer than 2-3 years at a fixed price, due to the lack of quotes of energy prices on the future market.
RESOS platform supporting the conclusion of PPAs
Due to the complexity of the PPAs, their conclusion is complicated and time consuming. OZEOS makes this much easier - offers of sale and purchase are visible on the platform, and innovative software will automatically select the most similar energy profile from the RES source to its demand profile.
In addition, we provide our customers with business balance services, at one of the largest electricity retailers in Poland. Its core business includes electricity trading, gas trading and customer service. Thanks to our POB offer, the customer gains security and predictability of the cost of purchasing energy.
In addition, as energy market specialists, we provide advice and support at each stage of the agreement.
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