Power Purchase Agreements (Ppas)


In a synthetic structure of AAEs, no power is physically exchanged. Instead, the agreement operates with a derivative contract structure, in which the buyer and generator agree on a defined “strike price” for electricity generated by a renewable energy facility. Each party will then enter into separate agreements with its electricity supplier/supplier for the sale/acquisition (if any) of electricity at the spot price. The agreement then functions as financial cover: if, during a billing period, the spot price exceeds the strike price set by the AAEs, the alternator pays the excess to the buyer for the electricity produced during that period; If the market price of electricity is lower than the strike price during a billing period, the purchaser pays the electricity producer the deficit of the electricity produced during that period. AAEs can be managed by service providers in the European market. Legal agreements between the national energy sectors (sellers) and the distributor (buyer/purchaser of large quantities of electricity) are treated as AAEs in the energy sector. In the case of decentralized production (where the generator is on a construction site and the energy is sold to the building occupants), commercial PPAs have developed as a variant allowing companies, schools and governments to source directly from the generator and not from the distribution company. This approach facilitates the financing of distribution-related production facilities, such as photovoltaics, micro-turbines, alternative piston engines and fuel cells. Electricity supply contracts ensure that once capital investments are completed, the project generates a return by reducing liquidity uncertainty. The buyer generally requires the seller to guarantee that the project meets certain performance standards. Performance guarantees allow the buyer to plan accordingly when developing new facilities or when executing application plans, which also encourages the seller to keep appropriate records. In cases where the supplier`s delivery does not meet the buyer`s contractual energy needs, the seller is responsible for restructuring the buyer`s debt.

Other guarantees can be contractually agreed, including availability guarantees and performance curves. Both types of safeguards are more applicable in regions where the energy used by renewable technologies is more volatile. [9] In parallel with this agreement, the purchaser of the company will have in many legal systems a contract to supply electricity with this approved supplier, under which electricity can be supplied from time to time to meet the energy needs of the company.