More and more companies want to be part of the expansion of renewable energy. A PPA (Power Purchase Agreement) is a way of doing this without making the investment yourself.
Can your company's electricity consumption directly contribute to the construction of more wind and solar farms? The answer is yes. A Power Purchase Agreement, or PPA as it is abbreviated, is an increasingly common way for companies to buy electricity directly from new wind and solar farms, thereby contributing to society's energy transition. A PPA means that the electricity user signs a long-term agreement directly with an electricity producer for an agreed amount of energy at an agreed price. The contract itself kickstarts the production of new wind or solar power.
A PPA is a form of agreement that is taking hold both internationally and in the Nordic region. Tech giants such as Google and Facebook have entered into PPAs with Nordic wind farms for their local operations. There is also great interest among industrial and real estate companies.
"Many companies first look at building solar installations on their own roofs, but this often only covers a small portion of what they need. If you want to make sure that more renewables are built, in addition to what you yourself have room for, you can either invest in your own solar or wind farm, or sign a PPA for a farm that someone else builds and operates," explains Marcus Melin, Strategic Energy Advisor at Vattenfall.
Large volumes over a long period of time
Through a PPA, the electricity user can ensure that new wind or solar power is built, without having to buy expensive equipment or operate and maintain the plant. The producer owns, builds, installs and manages the operation of the plant. When correctly designed, this means that the electricity customer is protected against price fluctuations in the electricity market and obtains better control of the company's electricity costs, often at good prices. But this agreement form is not for everyone.
"It's a matter of relatively large volumes over a long period of time, often 10–15 years, plus a few years before the farm is built," says Marcus Melin.
The way you buy electricity also differs from what you might be used to. For example, the customer can sign a fixed volume contract or be supplied with what the solar farm or wind farm produces, which will vary over the course of the day. Signing a fixed volume agreement means that if production does not reach the agreed volume, it is the producer's responsibility to purchase the electricity required from elsewhere. If you sign an agreement for a share of what is produced, it is instead up to the electricity customer to buy in the shortfall at the prices that apply at that time, and sell when supply is too much.
"If, for example, you buy at a certain price per MWh and an estimated annual volume, there will still be a lot of fluctuation in your costs if you buy what the farm generates at any given hour. The amount of electricity supplied to you varies, and that's when it's up to you as an electricity user to buy and sell to make it all come together," Marcus Melin explains.
Think long-term
It is important to think long-term when considering a PPA.
"This is a very long-term commitment and a lot can happen in the business during the term of the agreement. It's a good idea to think about whether your need for electricity might change or whether you plan to move your business to another price area. It is often best to sign a PPA agreement that covers parts of, but not all, your electricity consumption. Then you have a certain margin of error," Marcus Melin suggests.
Conclusion
A Power Purchase Agreement, abbreviated to PPA, means that the electricity user signs a long-term agreement directly with an electricity producer for an agreed amount of energy at an agreed price. The contract itself kickstarts the production of new wind or solar power. This way, the electricity user can ensure that new wind or solar power is built, without having to buy expensive equipment or operate and maintain the plant. Agreements often run for 10–15 years.