Power Purchase Agreements are electricity supply contracts that specify the supply of a fixed amount of electricity to a customer, usually a business or municipality with a large energy demand. The transfer of the generated electricity to an electricity trader can also include a PPA. The design of the contracts is complex, and the contractual details can vary widely. For example, consumption may take place in close proximity to production, so that delivery behind the grid connection point is an option. Alternatively, the electricity may be delivered via the public grid, in which case grid charges and taxes apply. The long-term fixing of electricity prices creates planning security for both sides.
Key questions to implement this business concept
What is the goal? | Benefit of the project
The energy cooperative sells clean power to a company (corporate PPA) or power trader (merchant PPA) rather than to the grid operator or on power markets, earning a steady payment.
How do you achieve the goal? | Key activities
Contract with large buyers
What do you need to achieve the goal? | Key resources and capacities
PV or wind power plant, suitable area, contract
How is the service provided? | Sales and communication
Constant electricity supply via contract
Who should participate? | Co-owners
Energy communities
What is the target group? | Customers
Companies, municipalities or electricity traders with a large demand for energy
What other stakeholders are needed? | Partners
Legal support, project development office, insurance company, bank, land owner
What are the expected earnings? | Earnings
Income from PPAs (additional theoretical profits compared to selling on the power market when the price of electricity is reduced)
What are the expected costs? | Expenditure
Legal fees, planning, project planning and operating costs, insurance costs, financing costs, grid fees and taxes in the case of supply via the electricity grid, lease if applicable (additional theoretical costs compared to the sale on the power market in the event of an increase of the electricity price)
Challenges & Solutions
Challenges/Disadvantages
- Complex contracts require a lot of time and consultation
- Commitment to long-term conditions could be negative for one of the partners due to the electricity price development
- If less electricity is produced than agreed, a financial or physical compensation by external electricity traders is necessary
Solutions/Advantages
- Suitable option for follow-up financing and continued operation for plants after 20 years in operation
- Direct sales mean that you do not have to rely on participation in tenders
- Stable and calculable electricity price for both sides
- Ecological image for companies
- Compared to other electricity supply models, there is normally no need to search for a residual electricity supplier
Specific Q&A
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