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PPAs: Common terminology

Written by
Tomás Oliveira

Let's dive into the ABC of PPA negotiations with a roundup of key terms you're likely to encounter.

2 min
6th Mar, 2024
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From understanding various delivery types to unraveling common structures, this glossary aims to demystify the jargon and serve as an introductory guide to newcomers in PPA contracts.

 

Delivery

Physical: An agreement in which a power generator delivers the physical electricity to an offtaker through the electrical grid at a fixed price per MWh for the duration of the agreement.


Financial: In a financial hedge, the asset’s generated electricity is sold to the spot market where the offtaker receives or pays the difference between the capture price and the PPA price.


Sleeved (Physical): A Sleeved PPA involves a "sleeve" intermediary to facilitate renewable energy transactions between developers and corporate offtakers, similar to a utility acting as a Balancing Responsible Party.

 

Structure

Baseload: The offtaker agrees to purchase a fixed amount of electricity production throughout every hour of a month/year (monthly and yearly baseload PPAs).


Pay-as-produced: The offtaker agrees to purchase a percentage of the actual produced electricity. In this structure, the electricity supply variations risk, also called volume risk, is born by the offtaker.


Fixed Profile: The offtaker agrees to purchase a percentage of the expected production profile on an hourly basis (the committed production).

 

Timeline

Commercial Operation Date (COD): It’s the day that the system becomes fully operational and starts injecting electricity into the grid.


PPA start date: Refers to the day upon which the fixed PPA price settlements start to be applied.


PPA duration: Referes to the duration on which the PPA is active for and it can vary depending on the negotiated terms, but it typically ranges from 1 to 15 years.

 

 

But wait, did we overlook any of the main concepts? Let us know what other definitions should be included.

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PPA Origination, Structuring and Pricing