If you’re considering a corporate power purchase agreement (PPA), here’s a simple breakdown of the essential clauses in this renewable energy contract.
Across Central and Eastern Europe, companies from all industries are looking to reduce costs, lower carbon emissions, and meet sustainability and ESG targets. And one of the most effective ways to achieve these goals is by signing a green PPA.
A PPA is a long-term electricity contract between a renewable energy producer (such as Enery) and a corporate customer (known as the “off-taker”). Under a PPA, your company receives a set volume of fixed-price renewable energy – typically below market rates – for the duration of the agreement.
Like all commercial contracts, a green PPA contains various clauses to legally and financially protect everyone involved. To help simplify the process, let’s look at the most important items and how they can influence your agreement.
Contract price
The contract price is the fixed cost per megawatt-hour (MWh) of the electricity supplied in your PPA. Securing low-cost energy protects your business from future price increases and can generate decades of financial savings.
Through Enery’s renewable portfolio optimization, we can help you identify and secure the most attractive pricing for your green PPA.
Annual energy generation volume
The PPA also defines how many megawatt-hours of renewable electricity your company will receive each year. This figure can vary depending on your power demands, country, the availability of renewable energy projects in your region, and whether your PPA is physical or virtual. Enery can work with you to understand your annual consumption and identify the optimum generation volume.
PPA tenor
The PPA tenor, also called the delivery period, is the duration of the clean energy agreement. Most PPAs last 15-25 years, although shorter contracts of 10-12 years are also possible.
Green PPAs also benefit from economies of scale. Longer agreements typically offer more attractive pricing, terms, environmental benefits, and greater protection against rising power costs.
Contract profile
The contract profile is the volume of clean energy supplied by your PPA, broken down into hourly, daily, or monthly blocks. We tailor the contract profile to your electricity consumption using data provided by your company while drafting the agreement. Your consumption profile may vary during the year depending on your business and industry type, production cycles, and seasonal demand.
At the same time, the output of a solar PV or wind farm is variable and may not always match perfectly with your consumption profile. In these cases, we buy clean energy from the market and supply it to you at the agreed price, ensuring the same financial and sustainability benefits.
Events of default
Every financial contract needs clear terms and conditions to protect the interests of both parties. Therefore, your PPA includes a list of default events that, in exceptional circumstances, may terminate the contract.
For the off-taker, these can include failing to meet financial payments, bankruptcy or insolvency, pre-defined changes in ownership or corporate structure, or severe breaches of contract. For the clean energy producer, these can include failing to reach financial close or commence project construction, bankruptcy or insolvency, forced project abandonment, or failing to meet insurance obligations.
Termination amount
Green PPAs are highly beneficial for energy consumers, and early terminations are quite rare. Nevertheless, your PPA will detail the amount your company must pay to break the agreement voluntarily.
The termination amount is calculated using various factors. They include the time remaining in the contract, legal and administrative costs, and the current age and valuation of the linked renewable energy asset.
Changing law provisions
During your PPA, there may be unforeseen changes to regulatory frameworks, policies, or incentives. For example, a government may impose taxes that eliminate the income of a renewable energy asset, or a grid operator may introduce new regulations that affect the supply of electricity.
To manage these risks, the PPA includes a list of potential legal changes, how they may impact the agreement, and who is required to take responsive action. These measures provide transparency and protect both parties from external influences beyond anyone’s control.
Curtailment
Curtailment is when a grid operator requires an energy generator, such as a solar PV farm, to reduce its production to balance the local power network. This request may come when too many generators feed power into the grid at once, or during events such as repairs or scheduled maintenance.
If the renewable energy asset linked to a PPA is curtailed, it may be unable to deliver the agreed generation volume. Therefore, when drafting a PPA, we can provide options for managing curtailment based on your country and local energy market.
Want to know more? Talk to Enery’s PPA experts
A power purchase agreement can provide your organization with years of financial and environmental benefits. At Enery, we build industry partnerships throughout Central and Eastern Europe by designing optimized and affordable renewable energy contracts.
If you’d like to discover how a green PPA can elevate your business, e-mail green.ppa@enery.energy