A power purchase agreement (PPA) is the energy source of the 21st century. But what is so alluring about these agreements for large commercial, industrial, and institutional (C&I) buyers? Why are businesses like Google, Amazon, and Walmart placing PPAs at the center of their energy strategy?
PPAs create an energy delivery agreement between C&I buyers and renewable energy project developers that allow the organization to lock in energy prices for up to 20 years. This is great news for organizations that are looking to swiftly meet their sustainability goals. With PPAs, institutional buyers get flexibility and creativity that traditional energy structures cannot provide.
Here’s our three top benefits for choosing a C&I power purchase agreement.
- PPAs protect against the risk of fluctuating energy prices.
Prices for traditional energy sources are notoriously subject to market variability, and PPAs can protect companies from that variability. Since wind and solar energy generation require only minimal maintenance costs after installation, buyers benefit from steady, predictable costs that can be specified up front in a PPA contract. This creates a winning scenario for businesses, whereby committing to low renewable energy prices via a PPA decreases risk from rising electricity prices in the future. However, it is important to note that a PPA is subject to equal risks, including financial risk, and companies should therefore carefully consider all aspects before engaging in a PPA.
- Locking in long-term energy deals creates an opportunity for future profit.
Unlike the traditional process of purchasing energy from a local utility, PPAs let companies capture the best energy price on the market by allowing access to a much wider range of energy providers. Through a Financial PPA, independent power providers across the nation can be paired with organizations looking to make a long-term commitment to renewable energy. The organization pays the developer through a 10-25 year contract to bring new sources of renewable energy to the grid in exchange for energy attribute certificates (EACs) – more commonly known as renewable energy credits (RECs) in North America. Once the renewable project is online – selling energy to the grid – proceeds for the duration of the contract go to the company. Herein lies the most compelling argument for buying a PPA: the opportunity to secure future financial gain from a commitment to renewable energy. However, it is important to note that there are equal risks to the financial performance of a PPA, and buyers should carefully consider all options before engaging in a PPA.
Past performance is not indicative of future results. Hypothetical performance results have many inherent limitations. No representation is being made that any program will or is likely to achieve profits or losses similar to those shown. Swaps, futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.
- PPAs are one of the fastest ways to reach sustainability goals and add new renewable energy to the grid.
Onsite generation and the use of EACs to mitigate emissions can only take an organization so far when it comes to sustainability goals. While there is a limit to the number of solar panels you can install on your roof, long-term energy purchase through PPAs has no cap. Organizations can, therefore, meet renewable energy targets in a cost-effective and reliable manner.
Signing a PPA is a great way to get ahead of your competitors, showcase your commitment to sustainability, and plan for risks while leveraging value for your organization. Contact one of our experts to learn more.