Understanding corporate power purchase agreements
A practical introduction to procurement models, physical and virtual PPAs and key commercial risks.
Physical and virtual structures
Physical PPAs involve power delivery arrangements; virtual PPAs are normally financially settled. Specific contractual obligations vary by jurisdiction.
On-site and off-site
On-site generation may sit behind the customer meter, while off-site agreements depend on network and settlement arrangements.
Due diligence checklist
Review term, contracted volumes, production profile, price indexation, balancing responsibilities, certificates, termination rights and credit quality.
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Commercial points that can make or break a PPA
Generation shape versus consumption
A solar or wind PPA delivers a generation profile that may differ substantially from the buyer’s hourly demand. Quantify the residual volumes to be procured from other sources.
Risk allocation
Compare pay-as-produced, pay-as-forecasted and baseload structures carefully, including balancing, curtailment, negative prices, profile risk and tolerance bands.
Certificates and claims
Agree on the treatment of guarantees of origin and environmental attributes. Sustainability claims must reflect the actual contractual arrangement and applicable reporting requirements.