What is a PPA? | PAK-Volt

Power Purchase Agreement (PPA)

Development of Green Power Generation, i.e., energy from renewable energy sources (RES)

The electricity market is evolving, and one of the ongoing changes is the dynamic development of so-called green generation capacities, i.e., energy sourced from renewable sources (RES). Among electricity consumers, there is growing awareness of the environmental impact of their operations. As a result, they are increasingly seeking opportunities to enter into agreements for the supply of green energy. This helps reduce their carbon footprint while lowering and stabilizing business operation costs. One of the solutions ensuring price stability is Power Purchase Agreements (PPA).

What is a PPA (Power Purchase Agreement)?

A PPA (Power Purchase Agreement) is a long-term contract for the supply of electricity between two parties: the producer and the consumer of electricity. Typically, the electricity sold comes from renewable energy sources (RES). Under this agreement, the producer commits to delivering a specified amount of energy within an agreed timeframe and from a specific source, while the consumer agrees to purchase and pay for the energy at previously agreed prices.

What characterizes PPA agreements?

PPA agreements are characterized by stability and the ability to secure pricing over the contract duration, which contributes to securing investments and reducing/minimizing price risk for both parties. Their structure allows for significant flexibility in adapting solutions to meet specific needs.

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PPA Mechanism

Who can enter into PPA agreements?

PPA/CPPA agreements can be entered into by various entities, both actively and passively involved in the electricity market.

PPA agreements vary depending on the specifics of the market.

Physical PPA

The subject of a PPA based on actual energy deliveries is the sale of electricity directly from the producer to the consumer. The price of the energy sold from the installation is either fixed or modified by a coefficient agreed upon by both parties.
The benefit for the consumer in this case is the long-term supply of energy at an attractive and predictable price.

Financial (Virtual) PPA

Contracts based on a differential mechanism are a pure form of mutually binding agreements, where the subject matter consists of financial transactions between the parties, dependent on the current situation in the energy market. A differential contract is based on mutual payments, which are linked to fluctuations in the wholesale market.

On-site

On-site: where proximity to the energy source is required (internal/direct transmission network).

In the On-site energy flow model, the energy producer is located close to the consumer. In this setup, the energy does not flow through the public electricity grid, but is transmitted via a direct power line.

Off-site

Off-site: where the transfer occurs through the supplier's transmission line.
In the Off-site energy flow model, unlike On-site PPA agreements, the producer uses an intermediary to deliver energy to the consumer. This is typically done through power plants that utilize public electricity grids for transmission.

The Process of Changing
Electricity Suppliers

Conclusion of a Contract with a New Supplier

To ensure continuity of energy supply, the new agreement should take effect on the day following the expiration of the existing sales contract with the current supplier.

Termination of the Sales Agreement with the Current Supplier

The first change typically involves terminating the so-called comprehensive agreement, which covers both the terms of electricity sales and the provision of distribution services.

Conclusion of a Distribution Service Agreement (this step can be carried out by the new supplier)

In the case of terminating the comprehensive agreement, a new Distribution Service Agreement with the Distribution System Operator (DSO) must be signed. This agreement takes effect on the day following the termination of the previous comprehensive agreement. It can be concluded for an indefinite period. It does not need to be terminated or renegotiated when changing suppliers in the future.