Signing a photovoltaic PPA contract can truly be a game-changer for your business. It’s a way to secure an electricity price over the long term, which avoids unpleasant surprises with bills. But be careful, there are things you need to fully understand before getting started. We’ll look together at the important points to ensure your agreement is rock-solid. Think of it like buying a house: you need to read all the clauses carefully before signing. We’re going to break it all down for you.
Key Takeaways
- A photovoltaic PPA is a direct contract between the solar electricity producer and the buyer, often a business. It sets the price and duration, for example, 10 or 20 years.
- There are physical PPAs, where electricity is delivered directly, and financial PPAs, which are more about price agreements without physical delivery.
- Solar panels can be installed on your own site (on-site) or electricity can be purchased from a remote site (off-site). Each option has its advantages.
- The benefits are numerous: cost stability, budgetary visibility, and contribution to the company’s environmental objectives without having to invest in installations.
- Understanding the key players (producer, buyer, sometimes an intermediary supplier) and the contract details is important to secure the agreement and avoid problems.
1. Definition and fundamental principles of a PPA contract
A PPA contract, or Power Purchase Agreement, is essentially an electricity purchase agreement. It is established directly between an energy producer, often from renewable sources like photovoltaic, and a consumer, usually a business. This type of contract aims to secure electricity supply whilst stabilising costs over a long period.
The basic principles of a PPA rest on several pillars. Firstly, the duration. These agreements are designed for the long term, often 10 to 25 years, which allows investors to make their installations profitable and buyers to benefit from predictable tariffs. Secondly, the price. It is generally fixed at the time of signing the contract, offering protection against energy market volatility. Finally, the quantity. The producer commits to supplying a defined volume of electricity, and the consumer to purchasing it.
Here are the key elements to remember for a PPA:
- Duration commitment: Typically between 10 and 25 years.
- Fixed price: A purchase tariff agreed in advance.
- Energy volume: Guaranteed quantity of electricity.
- Renewable origin: Electricity comes from green sources, often certified by guarantees of origin.
The main objective of a PPA is to create a stable and predictable contractual relationship between the producer and the consumer, thereby facilitating financial planning and the energy transition for the purchasing company. This allows for control over energy expenditure and a reduction in carbon footprint.
These contracts have become a strategic tool for businesses seeking to control their energy expenditure and source green electricity. They allow for a direct link between the production of a renewable power plant and the consumption of a business, without going through traditional wholesale markets. It is a form of financing for solar projects that is gaining popularity.
2. Key players in an energy PPA contract
A PPA contract is a bit like assembling a team for an important project. There are several roles to play to ensure everything goes smoothly. First, there’s the renewable energy producer. They build and operate the installations, such as solar panels or wind turbines. They commit to supplying a certain quantity of green electricity. Then, there’s the buyer, which is the company that needs this energy. But be aware, the path between the producer and the buyer is not always direct.
Sometimes, an energy supplier plays an intermediary role. This is called a « sleeved PPA ». In this case, the supplier buys electricity from the producer and resells it to the consuming company. They manage all the technical and administrative aspects, which simplifies life for the buyer. They also ensure that the balance between what is produced and what is consumed is maintained on the grid, a role often referred to as a « balancing responsible party ». It’s a bit like an orchestrator for energy flows.
We must not forget the experts. Technical and legal specialists are often involved to help structure the contract, which can be quite complex. They ensure that everything is compliant and that everyone’s interests are protected. Choosing a certified installer, such as those with the QualiPV 500 label, is also an important step to guarantee the quality of the installation.
The implementation of a PPA involves collaboration between several parties: the producer, the buyer, and often an energy supplier as an intermediary, not forgetting the experts who secure the agreement.
These various stakeholders, whether public or private, contribute to shaping the regulatory, financial, and operational framework of the project. Their involvement is necessary for the successful development of solar projects. Companies looking to secure their renewable energy supply, such as those in the chemical or automotive sectors, can find suitable solutions from specialists like Albioma. All these key players work together to advance the energy transition.
3. Physical vs Financial PPA: what are the differences?
When discussing Power Purchase Agreements (PPAs), it’s important to distinguish between two main categories: the physical PPA and the financial PPA. These two types of contracts, whilst sharing the same objective of securing energy supply, operate very differently.
The physical PPA, which accounts for the majority of signed agreements, involves a concrete delivery of electricity. The producer sells their energy directly to a consumer. This electricity travels through the public distribution network to reach the consumption site. It’s a bit like buying a product directly from its manufacturer, with a well-defined supply chain. The advantage here is the traceability of the energy, which can be a plus for companies concerned about their environmental impact. Companies like Michelin have already adopted this model for their factories, directly connecting their site to a nearby photovoltaic park. This helps reduce transport costs and strengthens the local integration of the project. A concrete example of this type of agreement is the one established for energy produced in Meaders, guaranteeing a stable supply at a competitive price.
On the other hand, we have the financial PPA, also known as a synthetic PPA. Here, there is no physical delivery of electricity between the producer and the consumer. It is rather a financial agreement, a kind of price insurance contract for electricity. The consumer buys their electricity at market price from their usual supplier, but simultaneously enters into a financial PPA with a producer. This contract allows them to hedge against price increases. If the market price rises, the financial PPA compensates for the difference. This mechanism offers great flexibility and allows for optimising financial risk management, without having to worry about energy logistics. This type of contract is often used to structure solar projects without initial investment for the owner, where an external party finances the installation [d199].
Here is a comparison table to better visualise the differences:
| Characteristic | Physical PPA | Financial PPA (Synthetic) |
|---|---|---|
| Electricity Delivery | Yes, via the public grid | No, purely financial agreement |
| Energy Flow | Direct between producer and consumer | No direct physical flow |
| Main Objective | Actual supply, traceability | Hedge against price volatility |
| Complexity | Less complex, direct link | More complex, financial mechanism |
| Flexibility | Less flexible on volumes and delivery | Very flexible, adaptable to financial needs |
In summary, the choice between a physical PPA and a financial PPA will depend on your priorities: if you are looking for a concrete and traceable energy source, the physical option is more suitable. If your main objective is to control costs and protect yourself against market fluctuations, the financial option will be more relevant. It is important to fully understand these distinctions to secure your agreement [3e83].
4. On-site or Off-site PPA: which location for your project?
The choice of location for your photovoltaic project within a PPA framework is a strategic decision that directly impacts its feasibility and profitability. Two main approaches stand out: the on-site PPA and the off-site PPA.
The on-site PPA involves installing solar panels directly on your own premises. This can include the roof of your buildings, car park canopies, or adjacent land. The main advantage here is the immediate proximity between production and consumption. This minimises energy losses related to grid transmission and often simplifies administrative procedures. This configuration offers increased control over your energy supply. However, it is necessary to ensure that the site has the required surface area and that the structure (roof or land) is in good condition and suitable for installation. Verifying the site suitability is therefore a crucial step.
Conversely, the off-site PPA involves installing the photovoltaic plant on a remote site, which may be in the same region or even in another county. The electricity produced is then injected into the public distribution network and transmitted to your consumption point. This solution is often preferred when the available space on your site is insufficient or unsuitable. It also allows for pooling operating costs across larger parks and accessing areas with optimal sunshine. It is important to note that off-site projects can be of two types: greenfield (new construction) or brownfield (renovation or extension of an existing installation).
Here is a comparison table to help you visualise the differences:
| Characteristic | On-site PPA | Off-site PPA |
|---|---|---|
| Location | Directly on the consumer’s site | Site remote from the consumer |
| Transmission losses | Minimal | Potentially higher |
| Project control | High | Less direct |
| Power flexibility | Limited by available space | Greater, adaptable to larger parks |
| Administrative complexity | Generally simpler | Can be more complex, especially for connections |
The choice between these two models will depend on numerous factors, including land availability, local technical constraints, your company’s sustainability objectives, and of course, financial aspects. An in-depth analysis of your situation is necessary to select the most relevant option. It is also advisable to prepare your project thoroughly in advance, by selecting the right professionals and studying financing options to finalise your installation.
In all cases, a rigorous technical and economic feasibility study is essential. It will confirm the viability of your project and precisely define the characteristics of the installation, whether it is on your site or elsewhere. Proximity to the electricity grid is a key factor, ideally within 300 metres of an Enedis transformer for on-site installations, for example to check compatibility.
5. The benefits of PPAs
Power Purchase Agreements (PPAs) offer several significant benefits, both for producers and consumers of renewable energy. They provide a structured approach to securing electricity supply and its valorisation.
For businesses, one of the main advantages lies in the predictability of energy costs. By fixing a tariff over a long period, PPAs help protect against energy market volatility. This facilitates better budgetary planning and reduces financial uncertainty. Furthermore, entering into a PPA strengthens a company’s brand image by demonstrating its commitment to sustainable energy and reducing its carbon footprint. This approach can improve the perception of customers and partners.
Here are some key benefits of PPAs:
- Price stability: The electricity tariff is negotiated and fixed for the duration of the contract, offering protection against unexpected price increases.
- Financing renewable projects: PPAs provide the necessary financial security to develop new green energy production facilities, such as solar farms. This helps increase overall renewable production capacity.
- Traceability and environmental credibility: They guarantee that the electricity consumed comes from renewable sources, which is essential for sustainability objectives and non-financial reporting.
- No upfront investment: In many cases, the consumer does not need to invest in the production installation, with the financial risk being borne by the project developer.
Adopting a PPA is part of an overall energy strategy. It not only allows for cost control but also actively contributes to the energy transition. Businesses can thus transform a potential constraint into a lever for performance and responsibility.
PPAs can also be adapted to different configurations, whether for on-site or off-site installations, offering appreciable flexibility to meet the specific needs of each project. Analysing the different PPA options, such as physical or financial PPAs, allows for choosing the most appropriate structure to secure your agreement.
Going solar is a brilliant idea! Power Purchase Agreements (PPAs) make it even more appealing. They allow you to sell your surplus energy at a pre-agreed price, ensuring stable and predictable income. It’s a smart way to make your photovoltaic installation profitable whilst contributing to a greener future. To find out more about how PPAs can help you, visit our website today!
To conclude: securing your energy future
In summary, whilst signing a photovoltaic PPA contract may seem complex at first glance, it represents a strategic step for many businesses. By taking the time to fully understand the points discussed in this article, you empower yourself to negotiate an agreement that meets your needs. This will allow you to stabilise your energy costs in the long term and strengthen your commitment to renewable energy. Do not hesitate to seek professional guidance to navigate this process effectively.
Photovoltaic PPA: 5 essential points to secure your agreement
What is a PPA contract for solar electricity?
A PPA contract is like a special agreement between the one who generates green electricity (for example, with solar panels) and the one who needs it, such as a business. This agreement states that they will exchange electricity for a long period, like 10 or 20 years, at a price that is decided in advance. It’s a way to ensure access to clean electricity without having to build your own plant.
Who are the main participants in a PPA agreement?
In a PPA agreement, there are mainly two main groups: the producer, who is the one who generates electricity from the sun, and the buyer, who is often a business that consumes a lot of electricity. Sometimes, there can also be an energy supplier who helps bridge the gap between the two, a bit like an intermediary to ensure everything runs smoothly.
What is the difference between a physical PPA and a financial PPA?
A physical PPA is when the electricity produced goes directly from the producer’s plant to the company that buys it. It’s like a direct delivery. A financial PPA is a bit different: it’s not the electricity itself that is exchanged, but rather a price agreement. It’s an agreement based on the price of electricity without it necessarily travelling from one place to another.
Do solar panels have to be installed on my company’s roof for a PPA?
Not necessarily! You can have an ‘on-site’ PPA, which means the solar panels are installed directly on your premises, on your roof for example. But you can also have an ‘off-site’ PPA, where the electricity comes from a solar farm located elsewhere. Both options have their advantages; it depends on what’s best for you.
What are the benefits of having a PPA contract for my company?
The biggest advantage is knowing exactly how much you’ll pay for your electricity for many years. It avoids unpleasant surprises if prices rise. Plus, you use clean electricity, which is good for the planet and for your company’s image. It’s a way to show that you care about the environment.
How long does a PPA contract usually last?
PPA contracts are designed to be long-term commitments. They often last between 5 and 25 years. This allows both parties, the producer and the buyer, to have great stability and plan their activities with peace of mind.
Do I have to invest a lot of money to sign a PPA?
One of the great advantages of a PPA is that it allows access to renewable energy without having to make a large initial investment to build a power plant. It is the producer who takes care of building and maintaining the installation. You pay for the electricity you consume, but not for the construction of the plant.
How does a PPA help me reduce my environmental impact?
By signing a PPA, you commit to buying electricity that comes from renewable sources, such as the sun. This means that the electricity you use does not produce greenhouse gases that warm the planet. It’s a concrete way to make your company greener and to show that you participate in the fight against climate change.
