Power Purchase Agreement (PPA)
A power purchase agreement, a buying structure for purchasing renewable energy, is a straightforward and effective way that an organization can procure renewable energy in a large amount. Power purchase agreements include both sleeved PPAs and Virtual PPAs. Both allow for the delivery of renewable energy amounts that meet sustainable energy requirements or commitments.
When working with a sleeved PPA, there is an intermediary utility company that is responsible for the handling of both the transfer of energy and money. Sleeving is a term applicable to the action of transferring the energy through an intermediate retailer, in this case a utility company. Working on behalf of the buyer, the utility company facilitates the transfer of both the money and energy to and from the renewable energy project. The utility company is responsible for the directing of energy from the renewable energy project and sleeving it to the buyer.
There are a number of benefits of sleeved or direct agreements. Particularly if the buyer is not comfortable in his or her knowledge about the market dynamics, a sleeved PPA reduces any level of risk. In a sleeved PPA the utility company is responsible for bearing any risk in fluctuations of the wholesale power market price.
In times that renewable energy is not readily available in amounts needed, the buyer is not responsible for the purchasing of balancing power.
The buyer does pay a sleeving fee to the utility company that is responsible for acting as the intermediary between the generator of the renewable energy and the consumer.
By Julia Armstrong
Diagram from Norton Rose Fulbright: