For businesses navigating the path to net zero, securing renewable energy is no longer optional; it is a strategic imperative. Power Purchase Agreements (PPAs) are empowering companies to decarbonise, stabilise costs, and lead in sustainability. This approach not only supports sustainability goals but also offers financial predictability in energy procurement.

Understanding Power Purchase Agreements (PPAs)

A Power Purchase Agreement is a long-term contract between an energy producer and a buyer, typically spanning 10 to 25 years. Through this agreement, the buyer purchases electricity at a predetermined price, directly from a renewable energy generator such as a wind or solar farm. This arrangement provides the buyer with a stable energy supply and price, while the producer secures a reliable revenue stream, facilitating the financing and development of renewable projects.

The Role of PPAs in Decarbonisation

PPAs are instrumental in corporate decarbonisation strategies for several reasons:

1. Direct and Long-Term Access to Renewable Energy: By entering into a PPA, companies can source clean energy directly, significantly reducing their Scope 2 emissions - those associated with purchased electricity. This direct procurement accelerates the transition to renewable energy, aligning with global sustainability targets.
2. Financial Predictability: Energy markets are often volatile, with prices subject to fluctuations due to geopolitical events, supply constraints, and regulatory changes. PPAs offer price stability over the contract term, enabling businesses to forecast energy expenses accurately and protect against market volatility.

Types of PPAs

PPAs can be structured in various ways to meet the specific needs of the involved parties:

• Physical PPAs: In this arrangement, the buyer receives physical delivery of electricity from the renewable energy project. This setup is common when the energy producer and buyer are located within the same grid region.
• Virtual PPAs (VPPAs): Also known as financial PPAs, VPPAs involve a contractual agreement without the physical delivery of electricity. Instead, the buyer and seller settle the difference between the contracted PPA price and the market price. This model provides flexibility, allowing companies to support renewable energy projects almost regardless of their location.

Case Study: Allego’s Commitment to Green Energy

A notable example of PPAs facilitating decarbonisation is the agreement between Allego, a leading electric vehicle (EV) charging network, and Klimaatfonds Nederland. This corporate PPA enables Allego to charge EVs with green electricity sourced from a new solar energy project, Zonnepark Aadijk II. The project is expected to generate approximately 43,000 MWh of electricity per year, equating to charging around 2,000 electric vehicles daily.

Implementing PPAs: Considerations and Best Practices

While PPAs offer numerous benefits, successful implementation requires careful consideration:

• Contract Length and Terms: PPAs are long-term commitments. It is essential to negotiate terms that align with your company’s energy needs and sustainability goals.
• Regulatory Environment: Energy regulations vary by region. Understanding local policies and incentives is crucial to maximise the benefits of a PPA.
• Risk Management: Assess potential risks, including market price fluctuations and changes in energy consumption, to ensure the PPA remains advantageous throughout its duration.

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Power Purchase Agreements are a powerful tool for companies aiming to decarbonise their operations and achieve sustainability targets. By providing direct access to renewable energy and support for new green projects, PPAs contribute significantly to global efforts in combating climate change.

With AFS Energy’s expert guidance, you can transform your sustainability journey into a strategic advantage, fostering long-term success and resilience in an ever-evolving business environment.