Choosing the right Power Purchase Agreement for your organisation
12th November 2021
If you’re an independent generator who produces more energy than you use, the opportunity is there to sell your excess power back to the grid as a source of revenue. But first, you’ll need a supplier to do it.
This is where a Power Purchase Agreement (PPA) comes in. A PPA is a supply contract where you agree to sell your excess power to a third-party buyer, often at a fixed price and for a set period.
A good PPA will be easy to understand, reflect up-to-date market prices and set out clear payment terms. It should be fully transparent with no hidden costs.
Am I eligible?
Any electricity generator exporting to the grid is eligible for a PPA. No matter what type of technology you use to generate power, Drax can help find a PPA that works for you.
This can include solar, wind, hydro, biomass or anaerobic digestion. You’re also eligible for a PPA if you’re already accredited under the Feed-in Tariff (FiT) or Renewables Obligations Certificate (ROCs) schemes.
While the FiT scheme closed to new applicants in 2019, if you’re still on a FiT contract, you can also set up a PPA and run both at the same time.
What are the benefits of a PPA?
- A source of income – The rates you receive per megawatt hour and amount of power delivered can be fixed in advance, so you’ll know what price you’ll receive for your excess power.
- No risk – Energy suppliers forecast how much energy we think you’ll produce over a certain timeframe. If less energy is produced than forecasted, as can be the case with weather-reliant renewables, we’ll deal with the deficit and make up the difference financially.
- Stay in control – A PPA covers the sale of excess electricity you generate. This means you have complete control of energy you generate for your own needs. Your organisation will never have to limit its power consumption to meet grid demand for electricity.
- Supporting decarbonisation in the UK – By selling renewable electricity to the grid, your PPA contracts help reduce the use of carbon-intensive power generation, as well as help balancing supply and demand in local areas.
Which PPA is right for you?
Different PPA contracts are available depending on your business, your priorities and how much energy you have available to sell. There are three main types of PPAs:
Fixed Price PPAs
- Smaller-scale generators
- ‘Prosumers’ – who use the energy they produce and only want to sell the excess
- Those who prioritise price certainty over flexibility
As the name suggests, Fixed Price PPAs lock in the current market rate for energy for the course of the contract – usually one to three years.
This is the most popular type of contract. It’s particularly appealing at times when market rates are high for generators who can lock in good prices. With this, generators will know how much money they’re going to make up front.
There are two types of fixed contract. Both give you a fixed price for your electricity but differ in how they handle embedded benefits (the extra payments given as a reward for providing sustainable energy to your local network.):
- Fully fixed gives you a combined, fixed rate for both your power and associated embedded benefits.
- Fixed price with passthrough embedded benefits gives you a fixed price for your energy and passes through your embedded benefits as a fixed percentage.
Whatever your contract type, you’ll receive a Renewable Energy Guarantee of Origin (REGO) certificate, which proves that the energy was generated from a renewable source and is sold to the supplier along with the energy.
Flexible Price PPAs
- Larger generators with a predictable output
- Generators who want to sell most of the energy they produce
- Those interested in energy trading
- Those who prioritise flexibility over price certainty
The wholesale market varies over time, with energy being more expensive at times of low supply and high demand. A Flexible PPA allows you to make the most of this so you can get the best price possible.
This is achieved through staged selling. We break your output down into blocks over a period of time and they can be fixed at different prices based on market movements. This can be done throughout the course of the contract (usually one to three years).
- Larger installations, purpose-built for generation
- Generators who want to sell all of the energy they produce
- Those with multiple sites, each with different commercial needs
- Variable contract lengths
In more complex cases, a bespoke contract is needed to find the best route to market. Bespoke contracts can involve fixed or flexible pricing and will vary from company to company.
Scale up to a CPPA
Beyond PPAs are Corporate Power Purchase Agreements (CPPAs). Unlike PPAs which are between renewable energy generator and energy supplier, a CPPA is usually an agreement between a renewable energy generator and a single ‘corporate’ business or organisation.
With a CPPA the end user (the business) agrees to buy the renewable power directly from the generator rather than through an energy supplier. This means they can state the precise source of their renewable energy.
CPPAs are larger, with the generators typically being large scale (e.g. a hydro power station rather than a single wind turbine) and mostly long-term, over 10-15 years.
Double the benefits with a CPPA
For the generator, a CPPA provides all the benefits of a PPA, including the opportunity to diversify income streams. Because of their scale, a CPPA could even unlock the finance needed for a larger scale renewable energy project.
CPPAs benefit both parties. For any large business that consumes more than they could generate themselves, a CPPA allows them to directly support a named generator. This can bring several benefits including increased brand value and public promotion of their Environmental, Social and Governance (ESG) goals.
Want to find out more?
Drax has a long history in supporting independent renewable power generators in the UK. Through our power buying scheme, we support more than 2,300 renewable generators. We can help you find a PPA that’s right for you, whatever your technology, volume, or risk appetite.