PPA and cPPA: key to energy efficiency and emission reduction

What are PPAs?

PPAs (Power Purchase Agreements) are long-term contracts under which a company undertakes to purchase electricity from a specified supplier for a set period of time. These agreements are often used in the context of renewable energy projects, such as wind farms or photovoltaic farms. PPA/cPPA agreements are characterized by high stability—under them, producers commit to supplying specific amounts of energy from designated sources and at a set time, and recipients purchase it at a set price.

Thanks to such contracts, recipients can protect themselves against the risk related to energy price fluctuations, and also gain image value associated with the use of green sources. Producers, on the other hand, increase the security of their own revenues, which become more stable. The environment also benefits from PPAs and cPPAs—reducing emissions and addressing issues related to ESG are often strong motivations to enter into energy purchase agreements.

What are cPPAs?

A corporate power purchase agreement (cPPA) is a specific type of PPA that is entered into directly between a company and a power producer, bypassing traditional intermediaries such as grid operators. cPPAs allow companies to purchase renewable energy directly, giving them more control over their energy costs and helping them meet their sustainability goals.

Differences between PPAs and cPPAs

• Agreement structure: PPAs are typically entered into by grid operators, while cPPAs are entered into directly between a power producer and a corporation.
• Flexibility: cPPAs are more flexible in terms of tailoring the terms of the agreement to a corporation’s specific needs.
• Cost control: cPPAs allow companies to better control their energy costs by cutting out the middleman.

Types of PPAs

PPAs can be divided into several types, depending on the specific needs of the company and the way in which the energy supply is implemented. Each type of agreement has its own unique features that can be beneficial in different business contexts.

• On-site PPAs

On-site PPAs are agreements in which energy is produced directly on the site where it is consumed. Under this agreement, the energy installation, such as photovoltaic panels or small wind turbines, is located on the company's premises. The energy is generated and consumed on-site, eliminating the need to transmit it through the power grid. This solution is particularly attractive for companies that have the appropriate space for the installations and want to increase their energy independence. On-site PPAs can lead to significant savings on energy transmission costs and the reduction of transmission losses.

• Off-site PPAs

Off-site PPAs are agreements in which energy is produced at a remote location and transmitted to a company via the power grid. In this case, the renewable energy producer builds and operates the installation (e.g., a wind or solar farm), and the company purchasing the energy is the recipient. Off-site PPAs are beneficial for companies that do not have the appropriate space for their own energy installations or want to take advantage of larger, more efficient projects. With these agreements, companies can benefit from renewable energy sources without having to invest in infrastructure on their own premises.

Types of cPPAs

Similar to PPAs, corporate power purchase agreements (cPPAs) can be divided into several types, which suit different needs of companies and methods of energy delivery.

• Physical cPPAs

Physical cPPAs involve direct delivery of energy from the producer to the recipient via the power grid. Under such an agreement, the renewable energy producer physically sells the delivered energy to the company, and the grid operator transmits it to the receiving site. This solution allows companies to use green energy without having to invest in their own production infrastructure, while maintaining control over the energy source.

• Virtual cPPAs

Virtual cPPAs, also known as synthetic PPAs, are financial agreements in which a company and a renewable energy producer agree on a price for energy for a specified period, but the energy is not physically delivered directly to the company. Instead, the producer sells the energy to the grid, and the company receives a financial benefit related to the agreed energy price. Virtual cPPAs are attractive to companies that want to protect themselves from energy price fluctuations and support the development of renewable energy sources, even if they cannot directly use the physically delivered energy.

• Hybrid PPAs

Hybrid PPAs are agreements that combine elements of both on-site and off-site PPAs. Under such agreements, a company can use energy produced both on-site and from remote facilities, allowing for better optimization of energy supply and maximization of the benefits of renewable energy sources. Hybrid PPAs can be particularly beneficial for large companies that have diverse energy needs and want to increase their energy independence and flexibility in managing their resources.

• Who can benefit from PPAs and cPPAs?

PPAs and cPPAs are aimed at companies with high energy consumption. Heavy industry, data centers, and large manufacturing facilities can benefit greatly from these agreements due to their high energy demand. Companies looking for stability in energy costs can also benefit from them, as long-term contracts help protect against price fluctuations in the energy market. Companies that invest in sustainability and strive to reduce their carbon footprint can also use PPAs and cPPAs to support their environmental goals. By purchasing renewable energy directly, these companies can effectively support their ESG (Environmental, Social, and Governance) strategies and build a greener image.

• Advantages of PPAs and cPPAs

PPAs and cPPAs offer many advantages that make them attractive to businesses. First of all, they provide stability in energy costs through long-term contracts, which greatly facilitates financial planning and allows for better budget management. Purchasing energy from renewable sources helps companies reduce CO2 emissions, which is crucial for achieving environmental protection goals. Additionally, companies can reap significant financial savings by eliminating intermediaries and using cheaper, renewable energy sources, which translates into lower operating costs.

Using these agreements can also improve the company's image in the eyes of customers and investors, thanks to its commitment to sustainable energy practices. PPAs play an important role in promoting sustainable development and energy transformation. Thanks to them, companies can not only secure their energy supplies at stable prices but also actively contribute to reducing CO2 emissions and supporting the development of renewable energy sources. In the context of the global challenges related to climate change, PPAs and cPPAs are effective tools that can help companies achieve their sustainability goals and build a greener and more responsible future.

Disadvantages of PPAs and cPPAs

PPAs and cPPAs also have some disadvantages. The negotiation and conclusion process can be complicated, requiring legal support and thorough regulatory analysis, which can be a challenge for companies without the right experience in this field. In addition, long-term commitments can be risky, especially in the event of sudden changes in the energy market, which can affect the profitability of the agreement. Companies must also be prepared for the risks associated with the volatility of energy production in renewable energy projects, which can affect the continuity of supply. Despite these challenges, proper preparation and expert support can help minimize the risks and fully utilize the potential of PPAs and cPPAs.

PPAs and cPPAs are effective tools for companies that want to reduce their energy costs, protect themselves from energy price fluctuations, and reduce greenhouse gas emissions. Despite some challenges related to their implementation, the benefits of these agreements are significant. Companies that invest in such solutions can count on long-term savings, improved energy efficiency, and a better image in the eyes of stakeholders.

Legal and regulatory sources

• Act of 10 April 1997 - Energy Law (Journal of Laws 1997 No. 54, item 348, as amended),
• Regulation of the Minister of Economy of 4 May 2007 on detailed conditions for the operation of the electricity system (Journal of Laws 2007 No. 93, item 623),
• Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources.