PPA Knowledge Hub

PPA for Off-taker

What is a Utility Power Purchase Agreement?

  • Utility Power Purchase Agreements (Utility PPA) are standardized contracts that can be closed between the owner of renewable energy assets and a utility/energy trader acting as the Off-taker. However, a Utility PPA can also be completed between a corporate or public institution and a utility/energy trader working as a supplier.
  • Utility PPAs can be divided into Green Tariffs and Green Premiums. The first is a long-term contract for energy-intensive clients, while the latter has a short-term tenor for medium and small companies and the residential sector.
  • Utility PPAs can deliver bundled EACs, but the Off-taker's sustainability largely depends on the liquidity and investment strategy of the utility/energy trader.
utility PPA
Number 1

How do unbundled Energy Attribute Certificates (EACs) work?

Utility Power Purchase Agreements (Utility PPAs) are defined as standard contracts between a utility or energy trader (sometimes called Merchant PPA) and an electricity-consuming Off-taker (e.g., corporate or public institution) for the delivery of electricity under a specific price scheme. In the context of renewable energy, Utility PPAs are contracted covering the delivery of renewable energy provided by the utility and the corresponding Energy Attribute Certificates (EACs) devalued by the utility on behalf of the client for documenting and proving the origin of renewable energy.

The first significant problem from a buyer’s perspective is that Utility PPAs cannot deliver 100% renewable power physically unless the utility or energy trader generates or buys its sold energy solely from renewable energy plants. The second major problem is that a buyer cannot directly induce a renewable energy plant to build and connect to the grid. There are two major types of Utility PPAs:
  • Green Tariff Programs
  • Green Premium Programs
Both categories look mostly similar on the first view but are different in terms of contractual structure and their potential to prove sustainability from electricity consumers' perspective.
Rotating PPA Globe
Global Overview for Green Utility PPAs (Green Tariffs & Green Premiums)    Disclaimer: The countries shown in the table do not imply any acceptance, advise, or endorsement by Think RE GmbH     Source: Think RE GmbH, © Think RE GmbH
The potential bidders have to fulfill specific registration criteria according to the Terms and Conditions of the EEX. Therefore, only companies having signed a clearing contract with EEX, such as Utilities and Energy Traders, are allowed to bid for GOs, which are then bundled Green Tariffs / Utility PPAs.
Therefore, corporate Off-takers are not allowed to participate directly in those standardized markets.

Due to this limited direct access to EAC markets and the fact that bilateral transferred EACs usually are not publically available under Non-Disclosure Agreements, EAC markets are “over the counter” and less transparent for electricity consumers.

Some providers like Standard & Poor’s Global Platts started tracking the prices of so-called European Guarantees of Origin, the European EACs, in September 2019.
Number 2

What is the meaning of unbundled EACs for Offtakers and Developer?

Green Tariff Programs are typically long-term power purchase agreements in which a utility or energy trader is obliged to physically purchase at least the same amount of renewable energy and the corresponding EACs sold to electricity consumers. Green Tariffs are usually contracted by larger corporate clients, especially from Healthcare, Real Estate, and telecommunications. These long-term agreements were developed in response to the growing renewable electricity demand from large-scale corporate customers enabling them to purchase renewable electricity from a specific asset through a long-term utility contract similar to a PPA.
Functioning of Green Tariffs
Green Tariff Scheme    Source: Think RE GmbH, © Think RE GmbH
Note: SPV = Special Purpose Vehicle, IPP = Independent Power Producer, EAC = Energy Attribute Certificate
Note: P2 > P1; P2 > P3; EAC-Prices normally bundled in PPA-Prices
As shown in the graph, the utility or energy trader may purchase the green energy from its internal own renewable power plants or external sources like wind parks or solar farms. In both parts of the upstream value chain, the underlying Utility PPAs also includes bundled EACs. In the downstream portion, the EACs are devalued by the utility or trader on behalf of the Off-taker under a Green Tariff Utility PPA.

Whether the sold physical electricity is green (100% Renewable Energy) or grey (Fossil Fuels are still included) depends on the utility's operating electricity portfolio or the energy trader. Therefore, utilities are increasingly founding subsidiaries operating renewable energy assets to reliably prove that the delivered electricity is sourced 100% from renewable energy plants.

However, the graph shows that the PPA price invoiced to the Off-taker (P2) usually exceeds the prices from upstream PPAs (P1) or internal calculated prices (P3) due to the utility or trader margin.
Number 3

Global Overview of Unbundled EACs

Green premium programs are contracts between a utility or energy trader and small-scale commercial and industrial customers and residential consumers. These contracts typically have short-term tenors between one to three years.
The Off-takers pay a cost premium as an extra line item on their electricity bill rather than paying a fixed PPA price comparable to Green Tariffs. In contrast to Green Tariff Programs, utility or energy traders can only purchase unbundled EACs and not necessarily a physical amount of renewable energy.
Thus, the generation mix used to provide the green power can be intermittently changed by the utility. Green Premium Programs incur additional costs to the Off-taker on top of their prices for physically delivered electricity. Thus, Off-takers are unable to save and fix their cost of electricity over a longer time horizon.
Functioning of Green Premium Tariffs
Green Premium Scheme    Source: Think RE GmbH, © Think RE GmbH
Note: SPV = Special Purpose Vehicle, IPP = Independent Power Producer, EAC = Energy Attribute Certificate
Note: P4 > P1, P2, P3
The utility or energy trader purchases EACs from either secondary ECA markets or Independent Power Producers or even own renewable energy assets as part of the upstream value chain.
Under Green Premium Programs, the EACs sold to the Off-taker are unbundled and devalued by the utility or energy trader since there is no obligation for utilities or energy traders to deliver renewable energy under Green Premium schemes physically. The EAC price (P4) invoiced to the Off-taker exceeds the upstream portfolio price, defined as the volume-weighted average price of P1, P2, and P3.
The excess amount is added to the invoice and contains the utility or energy trader's margin. In sum, Green Premium products provide only a limited opportunity for Off-takers to prove their sustainability and manage their electricity costs.