Power Purchase Agreements (PPAs) are becoming an increasingly common alternative to fixed-rate energy agreements. You may have seen the news that Sydney Opera House, the City of Adelaide and Pernod Ricard have all committed to sourcing their energy from renewable projects through PPAs.
But what exactly is a PPA and how do the different options stack up?
What is a PPA?
Typically, PPA is an agreement between a power generator and a purchaser, sometimes referred to as the off-taker, for the sale and supply of energy.
In Australia, three types of PPA are common:
- Retail-sleeved PPAs: In this scenario, the agreement is between the wind or solar farm and an energy retailer, which then passes on the renewable generation through a retail agreement.
- Front of the meter PPAs: Typically, these are between large businesses or retailers and a renewable generator.
- On-site PPAs: Have on-site solar? This can be wrapped into a PPA by a retailer allowing you to make the most of your on-site generation
Why enter into a PPA?
PPAs are an alternative to standard retail contracts that give long-term price visibility and allow businesses to meet sustainability goals faster.
PPAs let businesses buy energy from renewable projects, often at rates that are much lower than standard market rates. The long-term and transparent design means that businesses can better manage energy use and costs.
For businesses looking to reduce their environmental footprint, PPAs are an effective way to meet sustainability goals and show support for Australia’s pipeline of renewable projects.
What is a Virtual Generation Agreement (VGA)?
Virtual Generation Agreements (VGA) are Flow Power’s version of PPAs that matches businesses’ energy needs to renewable generation.
Unlike most PPAs, VGAs can connect businesses to a mix of renewable projects that are best matched to their energy profile. This optimises how much renewable power a business can use.
Where does my power come from?
Unless you have an on-site PPA, you’ll commit to purchasing a set amount of generation from one or more renewable sources. This can cover more than 100% of your energy requirements or just a portion.
Ideally, you’ll choose a renewable energy source – wind, solar or both – that best matches how and when you use your power to get the optimum result.
What happens when the wind doesn’t blow or the sun doesn’t shine?
There will always be times when the wind isn’t blowing and the sun isn’t shining. This gap is referred to as your ‘balance of supply’.
It doesn’t mean that you won’t have power at these times, instead your energy will simply come from another source. To minimise your ‘balance of supply’, choose a PPA that will give you optimum coverage through renewable sources.
What do I pay?
Between your business and a retailer or generator, you will agree to buy your renewable generation at a set price that is usually fixed for the duration of the contract.
This is not the final price you’ll see on your bills each month – it’s simply the rate that you’ve agreed to pay for the portion of renewable energy you’ve committed to.
Your ‘balance of supply’, how you cover it and at what rate, will also factor into the final price you see on your monthly bill.
Businesses don’t have to simply take traditional fixed-rate contracts, the energy market has opened up more options. If you want to find out more about renewables and how to make a PPA work for your business give our team a call on 1300 08 06 08.