To source renewable energy, most solar companies turn to power purchase agreements. Read on to learn more about the different types of great solar power purchase agreements.
Community solar PPAs are similar to a master purchase agreement.
A community solar power purchase agreements, or “PPA,” is a three-way agreement between a utility, a non-profit, and a private company. Under a PPA, the utility agrees to purchase solar power from the private company for a set amount per kilowatt-hour. The solar community program also provides an outlet for the surplus power generated by the solar system to the utility.
A PPA works like a master purchase agreement and provides a fixed cost of electricity for the length of the contract. Depending on the agreement, the customer can opt for an escalator plan that increases their bill by 2%-5% each year or a fixed price plan that maintains the same price over the entire duration of the PPA, allowing the customer to save more money as utility prices increase. The customer will pay a fixed price for the electricity generated by the system, and the developer takes the risk of operation and maintenance.
While rooftop and canopy solar projects can be expensive, PPAs can be a good way for municipalities to save money and help their community. For example, Philadelphia recently signed a PPA with a solar power company in Adams County, Pennsylvania. The PPA was part of a Municipal Energy Master Plan to produce 100% renewable electricity by 2030. City officials and constituents influenced the plan, and the City’s PPA will allow the City to make 22% of the electricity it needs.
Block PPAs guarantee a shaped and firmed amount of electricity per hour.
When entering into a Block PPA, the parties agree to deliver the RECs and energy physically. This agreement guarantees a shaped amount of electricity every hour of the term. The buyer nominates the quantities based on load forecasts, and the seller is obligated to deliver the agreed renewable energy every hour of the period. This agreement can be beneficial for companies whose electricity usage varies day and night.
This long-term PPA can result in many complex financial risks for a corporation. Many corporate off-takers are not familiar with energy market risk. While PPAs are an imperfect hedge, they provide significant benefits for off-takers. The threats included in long-term renewable PPAs can consist of resource risk, operational risk, locational basis risk, derivative accounting, and general reluctance to lock in 100% of the cost of power.
Block PPAs are arranged as a master purchase agreement.
A master purchase agreement is a contract where the seller buys renewable energy from a private producer and then delivers it to a utility in return for a set price. The main difference between a master purchase agreement and a block PPA is that a master purchase agreement is typically a long-term contract. This type of contract is ideal for renewable energy projects because it allows the buyer to lock in a low price while allowing flexibility. Typically, there are three PPAs: long-term, master purchase agreements, and third-party sales.
A Master Purchase Agreement is a long-term contract that allows the utility to claim a certain percentage of renewable energy. It is the most common master purchase agreement for solar power and is usually arranged as a master purchase agreement. Block PPAs are also ideal for community solar, where residents can participate in a larger commercial project without paying for the whole thing outright.
Portfolio PPAs are arranged as a master purchase agreement.
A master purchase agreement (MPA) is an arrangement of various power purchases and sales, often with a fixed price and term, in which all the negotiations of the terms are in one contract. Corporate buyers of renewable energy usually prefer portfolio PPAs because they provide a more flexible solution to moving projects as desired. For this reason, they are arranged as a master purchase agreement. Listed below are some characteristics of a portfolio PPA.
The critical advantage of portfolio PPAs is the ability to diversify risk. In addition, they are attractive for corporate off-takers since they provide long-term revenue security. As a result, this arrangement provides the best of both worlds.