Power Purchase Agreements
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How can you use a Power Purchase Agreement?
A PPA is an increasingly popular type of contract to support the clean energy transition and energy equity access. It is a great option to adopt renewable energy sources into your infrastructure at a low cost and reduced risk.
What is a PPA?
A PPA is a financial agreement where a developer owns and arranges the engineering, construction, and operation of an energy system on the client’s behalf. The developer then sells the energy produced from that system at a predetermined price, which is offered at a competitive price compared to a utilities retail rate.
This is a model commonly used with renewable energy systems, that allows our clients to benefit from low-cost energy output with little to no upfront capital outlay. The lower energy cost will offset the client’s purchase of electricity from the power system while the developer receives income from the sale of electricity.The developer is responsible for the maintenance and operation of the energy system for the duration of the agreement.
Benefits of a PPA
- The developer handles the construction, operation and maintenance
- Locked in energy prices at a fixed rate protects clients from energy price fluctuation at retail providers
- PPAs are a good option for covering significant project costs that result in positive cash flows for our clients
- No upfront costs
- Clients can adopt renewable energy and save money
- No expertise in the renewable energy industry required
- Limited Risk
- The developer handles the construction, operation and maintenance
- Locked in energy prices at a fixed rate protects clients from energy price fluctuation at retail providers
- Financing
- PPAs are a good option for covering significant project costs that result in positive cash flows for our clients
- Entry point to renewable energy
- No upfront costs
- Clients can adopt renewable energy and save money
- No expertise in the renewable energy industry required
Power Purchase Agreement Structure
PPA agreements can be structured in many different ways, see the diagram below for different variations we can implement.
Contract Elements
There are several options when it comes to the land associated with operating a PPA. We are flexible with our agreement structures and use multiple different methods when discussing PPA contracts. See some common options below:
- Customer-owned
- Contractor owned
- Leased
The PPA contract rates usually increase by 1-5% each year for the contract term (i.e. a price escalator) to account for gradual decreases in system operational efficiency, operating and maintenance costs, and increases in the retail rate of electricity.
At the end of the contract term the client will have the option to extend the contract, remove the system, or purchase the energy system from the developer.
Land Ownership
There are several options when it comes to the land associated with operating a PPA. We are flexible with our agreement structures and use multiple different methods when discussing PPA contracts. See some common options below:
- Customer-owned
- Contractor owned
- Leased
Pricing Escalator
The PPA contract rates usually increase by 1-5% each year for the contract term (i.e. a price escalator) to account for gradual decreases in system operational efficiency, operating and maintenance costs, and increases in the retail rate of electricity.
End of Contract
At the end of the contract term the client will have the option to extend the contract, remove the system, or purchase the energy system from the developer.
