Renewable energy isn’t just about saving the planet; it can also offer considerable cost savings and potential revenue streams for businesses. However, navigating the complexity of these markets can be daunting without adequate knowledge. One of the most accessible and prevalent models that businesses can explore is the purchase of renewable energy through PPAs, or power purchase agreements.  

Understanding Power Purchase Agreements

As businesses strive to adopt more sustainable energy practices, understanding power purchase agreements (PPAs) has become increasingly important. A power purchase agreement (PPA) is a long-term contract between an energy generator and an energy consumer or buyer. Usually, these contracts last anywhere from 10 to 25 years. They allow businesses to purchase direct, physical energy from renewable sources, such as solar, wind, or hydropower generators, at a pre-agreed price. 

The Essential Components of PPAs

PPAs set out several terms for the sale of energy between two parties. The key components include the term of agreement, provision of energy, pricing structure, and risk allocations. 

1. The Term of Agreement: PPAs usually run for 10 to 25 years. This long-term contract provides the generator with a consistent revenue stream and allows the potential for return on investment over time.

2. Provision of Energy: PPAs can provide businesses with a more stable and predictable energy supply. The arrangement requires the renewable energy generator to supply a certain amount of energy over the agreement’s term.

3. Pricing Structure: PPAs set out a fixed price for this energy, agreed at the outset of the contract. This price can either be structured as a per-kilowatt-hour rate or may utilize a ‘block of power’ agreement where the buyer purchases a fixed quantity of energy for a set price.

4. Risk Allocations: A PPA also establishes who bears the various risks associated with energy generation, including equipment malfunctions, changes in regulations, and variations in energy production due to factors like weather patterns.

The Benefits for Business

The use of renewable energy can potentially offer significant savings over the cost of traditional fossil fuel-based sources. A PPA arrangement can lock in a price for renewable energy, protecting businesses from future energy price volatility. 

Another major benefit of a PPA for businesses is the potential to cement your organization’s commitment to sustainability and Renewable Energy Certificates (RECs). RECs can be sold on the open market, creating a potential new revenue stream from surplus energy generation.

PPA Models

There are two main types of PPAs: onsite and offsite. Onsite PPAs, also known as behind-the-meter or private wire agreements, involve the generator installing renewable energy generation equipment directly on the business’ site. The energy consumer uses the energy generated and pays for this usage via the PPA. 

Offsite PPAs involve a remote generator supplying energy to the grid, and the business agreeing to purchase a set amount of this energy. This PPA model is generally used when businesses do not have adequate space, appropriate conditions, or resources to install renewable energy generation on their own premises.

Conclusion

Renewable energy can offer businesses both economic and environmental opportunities. Power purchase agreements provide an accessible and stable method for businesses to incorporate renewable energy into their operations. However, before entering into any PPA, businesses should seek legal advice to ensure they understand the specifics of their chosen agreement and can navigate this complex sector effectively.