PPA contracts in photovoltaic self-consumption allow the construction of many new installations, but what exactly are they, how do they work and what are their main advantages? In this article we talk about it.

What is a PPA contract

PPA stands for Power Purchase Agreement. It is a long-term power purchase and sale agreement between a renewable developer and a customer/marketer at a pre-fixed price.

The parties involved in this type of contract are:

• A renewable developer (promoter): who carries out the investment, design, assembly and operation of the renewable facility on a customer's property in order to sell that energy.
• The customer: these are usually companies that need large amounts of electricity and with this type of contract they can negotiate better prices.
• A trader: there are cases where instead of closing the agreement with an end customer, it is done with a trader who will resell that energy.

The signing of a PPA allows a renewable developer to make the decision to invest in the facility by reducing the risk, since it has secured the necessary financing (or part of it) to cover the costs.

Therefore, and simply explained, a PPA is a contract for the purchase and sale of renewable energy between a producer and a consumer in which the price for an amount of electricity is determined for an agreed period, usually between 10 and 15 years.

How a PPA contract works in the solar sector

To better understand how a PPA contract works in the solar sector, let's name the two main types of renewable energy PPAs:

PPA Onsite

It is when the asset that produces the energy is close to the consumer, such as a photovoltaic self-consumption installation on the roof of the building that uses that electricity. In these cases the PPA seeks the "physical" use of that electricity to reduce consumption from the grid, thus reducing its energy costs.

PPA Offsite

In this case the contract is associated with a facility that is not in the immediate vicinity, but can be connected to the national grid at any point. In this case there is no "physical" use of electricity, but it is used as a financial backup.

That is: on the one hand the consumer will buy electricity from the grid in the normal way, on the other hand the generation facility will sell its production to the market, and thanks to this the consumer will get part of that profit, thus reducing his electricity costs.

Either way, PPA contracts are a financing tool to be able to develop renewable installations without assuming all the necessary upfront capital cost, since it is the developer who assumes the installation and maintenance costs for a period of time. Once the contract period has expired, the PPA contract can be extended or the customer can assume the purchase of the installation for the corresponding residual price.

The other financing alternatives for a solar installation apart from PPA contracts are the direct purchase of the installation or leasing.

Advantages of photovoltaic PPA contracts

Among the main advantages of this type of contract are the following:

• The consumer will obtain renewable energy at a fixed, below-market price for the duration of the contract, which helps to reduce costs and increase the predictability of such an important item as energy.
• The consumer can develop a solar installation with little or no upfront capital costs, as these are borne by the developer.
• The risk to the consumer is lower, as the developers are usually companies with experience in installation and maintenance of photovoltaic systems with the technical capacity to obtain the best performance from the installation.
• The building where the new solar installation is placed will increase in value, something that has been seen to occur in homes and industrial buildings. It is therefore a good way to invest in the property without having to make a significant outlay.
• PPA contracts make it easier to invest in the creation of new facilities by providing certainty and security, which also makes it easier to obtain financing for the project.

Manage your PPA contracts easily with Wattwin

In case you don't know us yet, Wattwin is the software used by installers and marketers, among other companies in the sector, to manage the design, sale, installation and maintenance of self-consumption and electrification projects.