What are Power Purchase Agreements?

By ENGIE - 23 December 2021 - 12:13

PPAs are long-term renewable energy contracts. They are increasingly popular with big companies, SMEs, and local authorities. Why? Because they are a reliable way of decarbonising their electricity consumption, contributing to the energy transition.


They are called “Green Power Purchase Agreements” (Green PPAs). These are green power purchase agreements from renewable energies which operate over the medium or long term (5 to 20 years). Clients who purchase these have access to a reliable, certified green energy at a predefined, stable rate. There are several types of PPAs, find out more about them here.


On-site PPAs 

PPAs are called “on-site” when renewable energy production facilities are installed on a client’s site. In this case, energy operators fund the design, installation, and operation of equipment. Clients who are site owners or tenants consume energy that is produced.

Off-site PPAs

PPAs are said to be “off-site” when energy production equipment is not installed on a client’s premises. These contracts are nonetheless called “physical” when clients agree to buy a given quantity of green energy produced by a well-defined renewable energy facility from an energy provider. For example, the Brest Oceanopolis ocean discovery park is powered by green energy from the Fanjeaux solar park, in the south of France.

What are the advantages of off-site PPAs?

For clients, they prove the renewable origin of their electricity consumption and demonstrate their commitment to short supply chains and to a local approach. For operators, these contracts reinforce their capacity to develop renewable energy parks with greater capacity, and to take advantage of the best locations for producing more profitable energy. Yields from offshore wind or land wind farms in windy areas are higher, as are those from solar PV installations in sunny territories.


What are virtual off-site PPAs?

“Virtual” off-site PPAs follow another logic. Just as with physical PPAs, clients commit to buying a quantity of electricity from an energy supplier, but do so on the wholesale green energy market. Energy that is consumed by the client is not linked to a defined site. Upsides for operators of this type of contract are that they can more easily invest in new green energy infrastructures, selling and making use of the electricity that their clients have bought on this market. As for clients, they benefit from the PPA offer: a fixed long-term rate and guarantees of origin of renewable assets, while continuing to be supplied by their operator. Virtual or “financial” off-site PPAs are recommended for large multi-site and multi-country clients, such as Amazon.


Rapidly growing Power Purchase Agreements

Common in North America and Scandinavian countries, Green PPAs are currently growing significantly in Europe, Asia, and Australia. In question are decreasing green energy production costs, the energy transition trend in the corporate and institutional world, and the limitation or end of public assistance with renewable energy. While Green PPAs initially affected large corporations (Google, Microsoft, BASF…), they are now open to all industrial manufacturers, tertiaries, and local authorities.


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