PPA agreements – what are they and why are they concluded?
The OZEOS platform operates on the basis of PPA (Power Purchase Agreement). This is a much simpler and more financially advantageous solution for green energy producers than participating in auctions. Companies purchasing green electricity also feel its positive effects.
What is this solution?
From the text you will learn:
- What are PPAs and who concludes them?
- What are the benefits of PPAs?
- What are the types of PPAs?
- How can OZEOS help in concluding PPAs?
- What is POB and what role does it play?
- The OZEOS platform supports the conclusion of PPA agreements
What is a PPA?
A PPA (Power Purchase Agreement) is a bilateral electricity supply agreement. It is usually concluded between the producer of energy from renewable energy sources and the buyer, who is most often an enterprise (then it is cPPA - corporate Power Purchase Agreement). The contract specifies the price, quantity and all conditions for the sale of energy, and is characterized by the fact that it is concluded for a long period - usually even 10 - 20 years. In addition to the supply of energy, PPAs can also finance the construction and operating costs of energy sources.
A PPA is therefore a long-term contract concluded directly between the green energy producer and its recipient. This is a very stable form of green energy supply straight from the source.
Why is a PPA concluded?
The main advantage of PPAs is the guarantee of stability. For the buyer, it is price stability and constant energy supplies, and for the seller, it is long-term security of receipt, and therefore - stable income. Banks are more willing to grant loans to suppliers with signed PPA agreements, as it is their financial security.
Signing a contract for the purchase of green energy through a PPA can be considered a kind of investment in renewable energy, without the need to allocate funds for photovoltaic panels or a wind farm.
Therefore, a PPA agreement is concluded in order to have long-term security for the receipt or sale of electricity, which is very beneficial, for example, if you need to secure investment financing or counteract sudden price changes on the energy market.
What are the types of PPA?
Although the classification is not that simple, due to the great freedom in concluding contracts, there are several types of PPA contracts. The two most popular ones are physical and financial.
Physical PPA Concerns the transfer of electricity through the same energy network as both the recipient and the supplier. The amount and price of energy that the recipient will receive are determined. A distinction is made between the On-site type, in which proximity to the energy source is required (e.g. on the premises of the enterprise) and the Off-Site type, where the transmission takes place via the supplier's transmission line.
Financial PPA (also called synthetic or virtual) – this is a financial contract that is linked to a physical PPA but does not include the supply of energy. The recipient sets the price for energy in the contract, but it does not physically reach him. He pays for the energy produced, hoping that it will be sold on the market at a higher price by the supplier. In Poland, financial agreements constitute the vast majority of PPA agreements.
| cPPA with physical delivery | cPPA virtual (financial) | |
|---|---|---|
| Is electricity sold? | Yes | No |
| Duration of the contract | Will of the parties | Will of the parties |
| Is trade balancing of energy needed? | Yes | No |
| Is a trading company needed in this process? | Yes | No |
| Will there be trade balancing costs? | Yes | No |
| Does the buyer receive Guarantees of Origin? | Yes | Yes |
| Is it necessary to purchase the missing volume? | Yes | No |
| Does the recipient have a financial settlement with the Supplier? | Yes | Yes |
| Is there a risk of production volume? (less, more energy produced) | Yes | Yes |
| Is the PPA dependent on stock exchange 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 by farms (hourly), the OZEOS platform creates a tailored energy mix.
When building an individual energy mix, we focus on including as much energy from renewable energy sources as possible. On its basis, a PPA contract 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 balancing process. This is the matching of electricity demand with the energy supplied by the seller under the PPA. This process is handled by the Entity Responsible for Trade Balancing (POB).
Balancing is important because the production of renewable energy, such as wind or solar energy, may depend on weather conditions, which means that the amount of energy delivered to the recipient may change over time.
The agreement for the trade balancing service is separate from the green energy purchase agreement in the PPA contract and is processed under a separate procedure. The balancing agreement is processed only after the conclusion of the PPA agreement between the Producer and the Customer.
The POB service comes in two variants:
- Energy balancing based on the day-ahead market (SPOT). The agreement may be concluded for an indefinite period, because its main assumption is daily trading of electricity on the energy exchange. The customer bears the risk of fluctuations in electricity prices in daily SPOT quotations. Last year, this variant was characterized by lower prices than traditional fixed-price offers.
- Fixed price offer taking into account the client's cPPA contract. In this variant, the Customer does not bear the risk of daily price fluctuations on the electricity exchange, as this risk is transferred to POB, which calculates it in its fixed price offer. In the current situation in Poland, it is not possible to conclude a contract longer than 2-3 years at a fixed price, this is due to the lack of energy price quotations on the futures market.
The OZEOS platform supports the conclusion of PPA agreements
Due to the complexity of PPAs, their conclusion is complicated and time-consuming. OZEOS makes it much easier - sales and purchase offers are visible on the platform, and the innovative software will automatically select the customer with the most similar energy profile from a renewable energy source to his demand profile.
Additionally, we provide our clients with trade balancing services from one of the largest electricity sellers in Poland. Its core activities include electricity trading, gas trading and customer service. Thanks to our POB offer, the customer gains security and predictability of energy purchase costs.
Moreover, as energy market specialists, we provide advice and support at every stage of the contract.
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