The Role of PPAs in Times of Crisis

PPAs Power Purchase Agreements
Find source: Oxford Martin School – University of Oxford

What is a PPA? Bilateral Power Purchase Agreements (Power Purchase Agreements – PPAs) have recently been at the forefront of interest for both sides, of producers and also from the side of electricity consumers. In a period of high volatility and uncertainty in the electricity market, PPAs could provide the security of a fixed price on a long-term basis. Security is the keyword for the market players.

Provided that the PPAs concern the Renewables market, there are multiple social benefits resulting from their dissemination. Namely, the PPAs strengthen the Energy Transition and the reduction of fossil fuels, while at the same time they replace the government subsidy through the Feed Tariff (FiT) or Feed in Premium (FiP).

For RES producers, a fundamental advantage is that PPAs secure bank financing for their projects. Nowadays, PPAs seem to be a necessary tool for the hedging of consumer risk. This is mainly because they guarantee a stable and secure electricity price that allows the proper planning of a company’s operating expenses. Stability would be much appreciated in the upcoming winters.

In addition, the key points of a PPA are price, duration, volume, and type. There are three types of PPAs: 1. Physical, 2. Sleeved and 3. Financial.

Physical PPAs

Physical PPA

To begin with the first type, the seller delivers electricity to the buyer with physical delivery. The direct connection between generation and consumption will be achieved provided the RES station is located near the consumption unit. A typical example would be a commercial and industrial rooftop solar installation for self-consumption. This way the company satisfies its energy needs economically and sustainably.

Sleeved PPAs

Find source: worldenergynews

The second one is the most common type of PPA in the European market. It involves an intermediary electricity supplier company that manages the transfer of energy from the RES station to the final consumer. In addition, in the Pay-as-Produced model, the participation of the energy supplier guarantees the supply of the consumer, during the hours when the RES producer is unable to produce energy.

Based on the above, the participation of suppliers, in all discussions regarding PPAs, is a given as their role is of pivotal importance in the delivery of electricity and also in the financial settlement between the parties.

Financial PPAs

Financial PPA
Find source: TotalEnergies

It is contrary to the first one. It concerns a virtual energy purchase agreement between a consumer and a producer. The PPA will not involve the physical delivery of energy. This type of PPA is purely financial. The consumer will pay a fixed price for each unit produced for the duration of the agreement. Additionally, usually every month, the competent authority calculates the difference between the wholesale purchase price and the PPA price and settles the difference between the parties accordingly.

It is evident that Greece is quite late regarding the development of a PPA market. Public procurement is probably to blame for that. But, it is better late than never.

The aftermath

Taking into account those mentioned above and aiming to stimulate the market of PPAs, the Ministerial Decision of July outlines the priorities for granting a Final Connection Offer by the System Operator to RES stations. The specific Ministerial Decision includes several groups of prioritization. Group B comprises stations for which the producer has entered the market. He can also be bound by an agreement to enter into a power purchase agreement with a final industrial consumer or with an electricity supplier. Those projects will be prioritized compared to others in groups C, D, E, and F.

According to information from market players, the available 1,500 MW of applications for “green” grid connections are intended for electricity sale and purchase contracts with suppliers or large consumers. Those have already been covered for the most part. As a result, the Ministry of Environment is going to increase the maximum power limit for the portfolio ” of green” RES units for PPAs.

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