Power Purchase Agreement
A Power Purchase Agreement, or PPA, is a long-term agreement for purchasing electricity. It is typically concluded between a power producer and an energy-intensive corporation. PPAs usually have a duration of 5-15 years, with an annual volume of delivered electricity ranging from 10 to 200 GWh/a.
A PPA functions as a long-term electricity price hedging instrument, benefiting both the power consumer and the electricity producer. Unlike traditional derivatives hedging, PPAs offer flexibility with various delivery and pricing structures, enabling tailor-made risk management solutions.
PPA may serve as financial instruments for power developers, producers and investors particularly when seeking financing for renewable power asset under development. By entering into a PPA, the power consumer actively contributes to the investment in new renewable energy.
Benefits of a PPA for an energy-intensive electricity consumer
Affordable and predictable electricity pricing
PPAs provide stable and predictable pricing for electricity, allowing energy-intensive corporations to plan their budgets more effectively.
ESG (Environmental, Social, Governance) advantages
By engaging in PPAs, corporations can significantly reduce their Green House Gas (GHG) Scope-2 emissions and helps them align with global ESG goals.
Competitive advantage for industrial suppliers in their supply.
Brand value and media recognition
Corporations that sign PPAs position themselves as forerunners in sustainability, earning recognition for their efforts, attract positive media attention and increase their Brand Value.