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What Makes a Successful PPA? Webinar FAQ

Zeigo Power and King’s College London recently participated in a webinar hosted by The Energyst titled “What makes a successful PPA?”. The webinar aimed to provide insights into what makes a successful PPA and how to de-mystify PPAs, making them simple and accessible. The webinar featured Mark Chappell, Senior PPA Manager at Zeigo Power, Russell Reading, Head of Decarbonisation and Energy Markets at Zeigo Power, and Julie Allen, Heat Decarbonisation Programme Lead at King’s College London, who provided their experience of PPAs from an end-user perspective. In this blog the Zeigo Power Energy Markets team have answer some of the most asked questions from attendees of the webinar.

Will Corporate Demand for PPAs Outstrip Supply in the Coming Years?

Various market dynamics lead us to believe that yes, a significant imbalance between supply and demand will impact European PPA markets for the next few years. There are various reasons for this: 

  • On the demand side, corporate energy consumers are facing short term deadlines to meet their publicly declared decarbonization targets. In addition, greater focus on reducing Scope 3 emissions has resulted in experienced PPA off takers start to engage their suppliers, introducing new buyer types to the PPA market. Recent changes to RE100 guidelines will also increase the demand for new build projects as buyers increase demand for assets that remain below 15 years of age for the duration of the PPA.
  •  From a brand perspective, PPAs with a new build asset is also taking priority to allow a buyer to claim additionality. Buyer sustainability strategies are looking to make a clear and measurable impact that will meet stakeholder and customer standards. As pressure mounts for companies to decarbonize and contribute to the broader energy transition, PPAs with new-build projects will continue to be seen as the gold standard.
  • However, whilst increasing demand and more stringent guidelines for buyers is a positive sign of market focus on impactful decarbonization, the sell side of the industry is current grappling with permitting and grid connection delays, increasing build costs and everchanging policy environments. This makes it harder to get new assets connected to the grid making it harder to keep up with buyer demand. With no short-term solution being proposed to radically accelerate permitting and interconnection queues across Europe, it is likely demand will grow at a rate faster than supply can match.

What is Meant by a Successful PPA? Is It the Production of Green Energy, or is it About the Cost of a PPA, or How to Find a Cheap and Suitable PPA?

There is no one size fits all when it comes to PPAs, and buyers have various motivations for including them in their sustainability and hedging strategies. A key shift in recent years is the focus on hedging against the price of power AND green certificates to protect operational costs whilst decarbonising in a traceable and impactful way.

What Impact will the UK’s CfD Allocation Round 6 Have on cPPA Market in GB?

Following AR5 and industry feedback, the UK government has announced an increase in the price for CfD AR6, this will hopefully reduce concerns raised by the industry last year. The target price for the next auction round, known as AR6, will be £73/MWh for Offshore Wind projects, an increase from £44/MWh in AR5. Offshore wind will also be given a separate funding pot in recognition of the large number of offshore projects expected to participate and the strength of other technologies including Onshore Wind and Solar PV it would be competing against in the original pot.

However, this doesn’t mean there’s no space for PPAs. Governments across the UK and the EU are considering how PPAs can work alongside existing schemes, such as CfD, to reduce industry reliance on subsidies and have renewable growth driven by the market. Whilst CfD auctions for less established technologies such as Offshore Wind will likely remain the preferred route-to-market, Onshore Wind and Solar PV assets are in high demand from corporate buyers and sellers. In terms of how the cPPA market will be impacted, it is likely with the CfD scheme becoming more attractive, assets that remain available with PPAs will be at a higher price point to remain competitive against government auctions.

Can You Provide Future Forecast Insights into PPA Pricing in the Medium to Long Term?

Whilst we cannot say for definite how the market will look in 10 years’ time, the current reality is that inflation and supply chain volatility are increasing the development costs of renewable assets across European markets. Prices of many minerals and metals that are essential for clean energy technologies have recently soared. Whilst inflation has eased recently, upcoming projects will still feel the impact of levels experienced in 2023, as average UK inflation surpassed 7%. Similarly, whereas solar projects were cheaper to finance than CCGT projects for most years through to 2021, this has not been the case for the last two years.

PPA prices must reflect all the financial realities developers face when trying to meet their internal return rate. With the cost of commodities, labour, and other critical project inputs increasing, and impacting how seller’s set a long-term PPA price with confidence has become a tall order. To achieve their internal rate of return, developers and asset owners have had to increase PPA prices to accommodate mounting costs. European PV and wind investors are revising their target equity returns up, due to higher interest rates.

What Are Your Thoughts Regarding Signing a “Fixed Pricing” PPA for a Long Term, Knowing that Production Cost of Renewable Energy Could Go Down in Mid/Long Term E.g: Solar Panel Cost ?

If I knew what future energy prices and renewable asset costs would be mid/long term I would be retired on a beach somewhere by now!

The key to the PPA is analysis of the costs now, vs market energy plus REGO/GoO and the requirements of long-term price stability, strategic purchasing and the decarbonisation/sustainability strategy. It’s a balance that each organisation decides for itself. There are also factors such as in the UK it’s expected to take longer to get new projects onto the network, so some view there may be risks associated with not being able to decarbonise in time for their targets. Ultimately it comes down to how a fixed price PPA fits with strategies for purchasing and sustainability.

Any Comments on How PPAs Deal with Firming Cost? Day Ahead Prices or Fixed Rates

On the basis that firming is conversion of an as generated volume from the generating asset into a guaranteed shape or baseload (and excludes balancing – which is managing the difference between expected and actual production from the generator) then it is possible to see:

  • Day Ahead – this basically is the cost of converting the longer term forecast of what the generator will do into a day-ahead forecast that will then be “balanced” on day. It’s still offered now as utilities don’t seem to feel it is unduly risky.
  • System Buy and Sell Price – this would be a pass through of the balancing costs (so is firming and balancing all in one). Clearly low risk for utilities and likely to be offered by some.
  • Fixed Rates – basically a forecast from the utility of their costs (potentially with a risk premium included). Not widely available at the moment following recent volatility in prices.

What’s right for any PPA (or corporate) depends on risk appetite, preference for a known fixed cost and the interplay between the various prices (eg day ahead and system buy) – which changes all the time.

It’s normal to see the PPA between the corporate and the generator being “pay as produced” with the corporate having to be responsible for any balancing costs (or firming if required) – although there are PPAs that include such costs. It’s important to assess these costs when assessing the PPA as the costs for different generation technologies, different utilities and different periods may all differ.

What Routes Have Renewable Suppliers Taken to Provide PPAs over Public Procurement Framework for Bodies like the NHS?

Public bodies often have very proscribed procurement rules and as such they need to follow set processes in both how they tender and their counterparties. Typically they can feel more onerous with the provision of more information required (eg a prequalification process may be needed) and less room to offer different options or negotiate. Public bodies, like other corporates, may still want to gather information and expertise and may engage consultants to manage the process or educate them prior to the process (and then they handle it themselves).

How have Cost of Balancing and Pay-as-Produced PPAs Changed over the Last Couple of Years?

In around 2020 it was possible to balance a pay as produced PPA and deliver “baseload” power for around £2 to £4/MWh.  Through the pandemic there were concerns around volatility of short-term costs by Utilities, then the Ukraine Conflict happened, and the costs of balancing shot up to around £15/MWh.  Over time as the markets stabilise and the utilities get confidence in the short-term volatility, you’d hope these costs would fall.  It looks like they are beginning to come down already from the peaks in the region of £15 to £20/MWh towards the £7 to £10 region in some cases.  The caveat I will make is that each project and technology is different the costs can vary.

Does a CPPA Only Impact Scope 2 Emissions for Market-Based Reporting?

PPAs address the off-taker’s scope 2 emissions, they can be used to address scope 3 by engaging your supply chain. Such as Aggregated PPAs (APPAs) used in Schneider Electric’s supply chain decarbonisation strategies, where companies act as an anchor tenant and lead negotiations on behalf of their supply chain and perhaps taking on more credit risk, mitigating the main concerns regarding APPAs over differing opinions in negotiations and what happens if one company stops operations.

Are There Price Differences Between a Virtual and Physical PPA?

  • There are price risks and differences in both.
  • For example, on the Virtual PPA there is a risk that the buyer and the seller do not get contracts for 100% of the index they are settling on – which could create friction in costs.
  • In a physical PPA there will be balancing costs and could be sleeving and firming costs

Is There a Difference Between an Onsite/Private Wire PPA and an Over the Grid PPA?

  • The onsite/private wire PPA will bypass some costs relating to delivery over the grid (and “supply”) making it attractive – but it depends on the cost of the assets (which could lead to a higher delivered unit rate.

Overall, again careful analysis of the options and making sure that all the costs and benefits are considered is important.

How Does Price Cannibalisation of Renewables in the Wholesale Market Affect PPA Pricing If You Are Not Utilising Battery Storage for On-Site Generation?

Cannibalisation means, the renewable assets reduce the price they receive when they generate. So, for example the windier the day, the more wind generation there is, the less other sources are needed and the price falls. The main impact we have seen in Europe is buyers diversifying the technology they have in their virtual PPA portfolios to manage the risks when prices are cannibalised. In the UK, where PPAs are more physical with a fixed price this doesn’t happen but buyers do consider PPA vs market purchases to manage their buying portfolio to achieve a well managed position which gives elements of price stability and opportunities if prices fall. Energy buying has become more and more a strategic enterprise with buyers adopting strategies to manage costs and risks to their businesses.

Does Zeigo Power Support PPA Contracting Outside of Europe/UK?

At the moment, we are focused on UK and European markets on. However, we are ultimately a platform and we are not limited by geography. We are working to expand the geographies we are active in and partnering with wider teams in Schneider Electric to service more clients whilst still providing an industry-leading software experience.

Are the Finance Backers Looseing or Tightening Their Restrictive Requirements on Credit Rating?

One major shift in the market in recent years is that buyer demand has largely outstripped supply in certain markets. For that reason, sellers have been more specific on who they choose to contract with, and counterparty risk is a key factor in their decision making. One important aspect in that decision making process is the financial strength of the corporate buyer. Although each developer will have their own due diligence and KYC process, the general gold standard in the industry is an investment grade counterparty rated BBB- or above by the like’s of Moody’s or Fitch or another well known and respected credit agency. Should a corporate not have this investment grade public credit rating or alike, there are other options that buyers can look into and explore to satisfy the generators requirements. We have seen our corporates explore several different routes, the first of those is an investment grade letter of credit though a bank, often rolling over and renewed annually with the cost diminishing on an annual basis as the PPA progresses throughout the term. Secondly, in some circumstances corporates can look at a parent company guarantee, depending on corporate structure and ultimate ownership of the business. Furthermore, we have also even seen some buyers look into Surety Bonds although the challenge here is that they are often not as widely accepted as a LOC for example. Finally we have also seen some buyers look at a form of Self Insurance policy or even a cash collateral deposit, but the key message here is to know what your options are as the generator will be looking at this in and taking this into consideration.

Overall if anything the Sellers are tightening their requirements. If the developer finances the project themselves through the balance sheet, requirements maybe less strict.

Are Credit Arrangements Two-Way? i.e Should a Buyer Expect a Generator to Provide Credit Cover. Especially if the Project is an Un-Rated SPV?

Traditionally this was more of a one-way process. There has a been a gradual shift, whereby more corporates are asking for reciprocal arrangements on credit. Typically, in the form of a letter of credit or PCG. There are concerns from the buyer side over the nature of the unrated SPV and some are looking for a means of protection if for whatever reason the SPV may suffer financial difficulties. A lot of developers will argue that there is only a flow of money from buyer to seller, so the buyer should not be concerned by credit arrangements. We have seen some developers put in place credit support for the buyer but at the expense of adding the premium into the PPA price.

What Categories of Parties are Buyers vs Sellers?

There are two main buyers in a PPA, either a utility (or traders with a generation licence) who partake in a Utility PPA, or a corporate buyer who partakes on Corporate PPAs. For our recent webinar with the Energyst, we typically refer to Corporates as the buyer. Sellers tend to be Developers or, again, Utilities/Traders.

Is It Possible for a Buyer and/or Seller to Hedge PPA Exposures?

Depending on the risk profile, various actions can be taken to hedge the various risks – from future CPI to perceived balancing risk, construction risk and volume risk. How this is done will vary on the perception of the risk, the cost of the hedge/mitigation and the ability of that counterparty to enact the hedge. As a result, these tend to be individually pursued but it is clear that any hedge (which itself may carry risks and costs) needs to be clearly understood. To this end professional advice on any arrangements (and the accounting of them) is usually sought.

How Has Tenor Changed with All the Recent Price Uncertainty?

Historically, cPPAs were long-term deals with a typical duration of between 10-15 years. As the cPPA market has developed we have seen a wider set of criteria be considered the ‘norm’. Whilst cPPA tenors typically remain between 10 to 12 years in duration, following recent market dynamics shorter term deals have become more prominent. This varies by market of course, and it remains to be seen how recent changes to RE100 guidelines will impact different aspects of PPAs, including the desired tenor.

Should One Consider Capacity Billing or Energy Billing When Developing PPA’s and Why?

We would say this is a matter of careful analysis of the price and the delivered capacity and volume to determine this. Depending on how things are set up, energy billing ultimately leads to a payment for what is actually generated and is broadly preferred in the market.

How Do Time Matching PPA Generation and Actual Consumption Impact the PPA Market and Are End Consumers Ready to See Their Matched Data on a 24/7 Basis?

There is a lot said about time matching, but it raises several interesting questions:

  • What benefit does it provide to the corporate and generator?
  • What happens if that generator isn’t running?
  • Are corporates wanting to firm match or just monitor? Would corporates overbuy to achieve 100% match?

In my view the underlying trend is to reduce energy and balancing/firming/shaping costs. As such we are seeing corporates looking at different technology mixes in their PPA portfolio and considering if a PPA with onsite storage could deliver cost benefits.

Why Are Virtual PPAs Less Common in the UK vs. Direct PPAs?

This could be a panel debate on its own!

There could be several factors why physical PPAs are more popular:

  • UK firms view of the accounting treatments of VPPAs
  • The UK having different electricity trading and supply arrangements to Europe and these favouring physical
  • UK firms viewing the physical as more desirable in the eyes of their customers/shareholders/auditors
  • UK developers preferring a physical route to a virtual one due to volatility in index prices
  • UK consultancies and Suppliers preferring the physical route

What Are the Type and Level of Flexibility that Both Parties ( Producer and Consumer) Can Be Aiming to Achieve in a PPA?

Flexibility can mean many things, and if this is required by either the producer or consumer any requirements are usually specified up front during the tender process.

It’s unlikely that the buyer will get any price flexibility as this is what underpins the investment decision, and is heavily influenced by market activity outside of a seller’s control. That said, there could be some flexibility in terms of starting dates, volumes and other terms.

Do We Know What Volume or Assets Are Going To Go Live in The Next 5 Years?

This is an ever-changing pipeline of projects globally being prepared. There are also different challenges (eg grid connection) in different countries so it’s a lot of data. If you have an interest in what’s coming up in a particular country, reach out to the Zeigo Power team at or request access to the Zeigo Power platform.

For Corporates with Limited PPA Experience, is External Legal Advice Recommended for Negotiation of PPA Terms?

From a Zeigo Power perspective, many corporates do not have experience in what is quite a niche area – either in their legal teams or their purchasing / energy teams, even though both could be highly experienced. This is backed by my wider experience in industry where we see corporates looking for external advice, especially on their first PPA. Of course, there are a variety of approaches to this from letting external legal resources do everything to letting them train your legal team to having them there as a check/advisor.

Where can buyers find which licensed suppliers offer these services and how do the generators contractual terms match up with the licensed supplier’s terms suppliers term?

In my experience, most buyers ensure that their supply tenders include anything they require to manage their PPA as a requirement to tender from any potential supplier.

That said it is possible to find a third party to balance and firm the generation then onwardly sleeve it to a supplier – which some suppliers might find easier to manage. I would suggest dialogue with suppliers to see how they can help you – as they too look to decarbonise their scope 3 portfolio.

It’s important that the relationship with the supplier is considered in the PPA either in broad flexible terms or in detail needed. Terms vary from supplier to supplier but at a high level will often have similar requirements such as data from the generators, REGO/GoO transfer, notice of outages/breakdowns, payments, permission to register meters and some requirements on the corporate to place on the generator to ensure they comply with industry rules and standards.

What is Happening to Balancing Contracts – Is it Normal to Have a 2yr Balancing Contract which is Considerably Shorter Than a 10/15 year PPA?

At the moment this is the norm as utilities are uncomfortable with previous volatility in the markets and the risks for further price spikes.  We are seeing “pass though” of balancing costs offered as well as fixed prices (which tend to be higher due to risk premiums).  Even pre pandemic we’d see 5 years max as typical period offered with need to renew.  Also the structure of the PPA (3 or 4 parties) can impact if 15 years is even needed – if someone changes Licensed Supplier every 2 -5 years they can take the PPA with them so don’t need a long term balancing agreement.

Are REGOs Still Fit for Purpose in The Current Market?

I believe that REGOs are fit for the purpose they were designed for, that is evidence of generating renewable energy – they are “guarantees of origin” after all. They also (along with the annual redemption period) provide somewhat of a buffer to the variability of renewable production for their buyers. They can also be taken as evidence of holding renewable power, but because there is no way to stop them being divorced from the actual MWh of power generated then it could be argued they are not perfect here.

The key here is public perception and expectation. The energy industry is complex but the woman or man in the street does not see that complexity and ultimately if they believe that “green” means buying certified power from a specific new build wind or solar asset, then that becomes the standard we need to achieve and hence PPAs are seen as a better solution than REGO/GoO purchase – especially if additionality is required.

Do you have a view on physical or virtual PPAs with co-located assets where a battery is dedicated to managing imbalance costs with spilled energy? + the benefit of capturing the spilled/clipped DC solar generation and associated REGOs?

This is a tricky question with many variables that would require careful analysis of specific cases. Broadly there are questions as to if managing balancing costs are more lucrative than providing services to the electricity network. Also, there is a question of size and timing of the charging and discharging depending on the interplay of demand and generation. I’ve heard it said that constraining off renewable generators could be managed using batteries both close to the generator and the demand centres. I also know it is possible, in some cases, to use a battery to manage network issues (specifically unpredictability of wind) and allow a generator to keep running when otherwise it would not. As to the economics? Again, they depend on the specific case and the market at the time.

Is it necessary to have external law firms that are specialising in energy to assist in the long form PPA? Without standardisation (like EFET), there are many considerations that need to be buttoned down. Having standardisation would help considerably.

From a Zeigo perspective, many corporates and some generators do not have experience in what is quite a niche area, even though highly experienced. Or they may not be able to afford in house counsel. There are a variety of approaches to this from letting external legal resources do everything to letting them train your legal team to having them there as a check/advisor.

In my view standardisation is not a silver bullet – EFET contracts still take time to get in place as even though standard they end up being negotiated. My view is that electricity supply arrangement contracts have over time become harmonised and easier to accept and get in place as they have became more prevalent, and standardised – especially around flexible products that sprang up after the new trading arrangements. I think we are seeing this starting in PPAs as the long form PPAs are very similar now, and the evolution is in response to changing environment (eg market). I don’t see we’d ever get to the stage of PPA “T&C” where anyone can accept them as totally standard – but happy to be proven wrong if it happens.

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