Observing the differences
A Physical PPA is an agreement in which a power generator sells the physical electricity to a offtaker through the electrical grid at a fixed price per MWh for the duration of the agreement.
A Virtual PPA is a financial agreement where no power is physically traded. The offtaker and generator will agree on a strike price and enter into separate agreements with their market agents/utilities to sell/acquire electricity in their respective energy exchanges at the spot price. Under this delivery type, the PPA serves as a financial hedge.
To dive deeper into Virtual PPAs, check out our latest post on the topic.
Overview of the steps
1. Generator sells the hedged portion of electricity directly to the offtaker through a public or private grid.
2. Generator sells the remaining electricity to the local energy exchange at the spot prices through a market agent.
1. Generator sells all electricity to the local energy exchange at the spot prices through a market agent.
2. The generator and offtaker settle their positions according to the differences between the PPA price and spot prices for the hedged portion of electricity.
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