The Power Purchase Agreement(PPA), a new tool for the French green electricity market
Commonly used abroad, the PPA (Power Purchase Agreement) is still in its infancy stage in France. Let’s see what it is all about and which advantages could this contractual mechanism offer in the current French electricity regulatory framework.
The PPA is a flexible tool that allows to finance green electricity production outside the traditional frameworks. Since the free market is dominated by instability, risk, and the public support schemes are more and more limited (guaranteed feed-in tariffs, compensation mechanisms and public tender process).
Typically, a PPA is a bilateral contract which directly binds the green energy producer with a big energy consumer company, interested in stable electricity supply conditions and promoting a greener image.
In a “Corporate PPA”, both parties can freely negotiate in details, all the terms and conditions of the deal in order to optimise their needs. For example; the contract duration, the quantity of electricity to be delivered, the prices, the method of accounting and the penalties in case of non-compliance with the contract terms by involved parties. However, The type of a PPA is not limited. For instance, in some cases an electricity trader can play the role of commercial intermediary.
Usually, three situations are distinguished:
- On-site PPA : The volume of electricity negotiated is directly delivered to a final consumer for its own consumption through a direct connection to the production site. Thus, the final consumer can avoid certain costs, such as the grid usage charges. Since the power delivery process is not involving the usage of the public grid.
- Off-site PPA : The electricity is supplied at previously negotiated price and it is carried out without direct connection between the production and consumption sites. The operation is undertaken by an intermediary (supplier or aggregator) which transports the electricity produced to the consumption nominated sites and also provides a balancing service to manage intermittency.
It offers additional flexibility, as the operator can select locations with the optimum conditions (for example; in case of photovoltaics or wind power production sites). Additionally, the chosen power plant can also be used for several PPAs with different consumers, thus risks are undermined as there are shared.
- Financial Corporate PPA : The company does not have to change the existing structure of its electricity supply, but it pursues the same goal as in previous examples. Which is to increase the share of renewable energy in its energy mix.
Hence, The company’s operation consists in making a commitment to a renewable energy producer by purchasing a given volume of electricity at a predefined price over the long term. But the two parties are only virtually connected and no renewable power is physically delivered to the buyer. Instead the buyer resells the electricity purchased as part of its PPA to the grid, while retaining the guarantees of origin, demonstrating the “green” origin of virtually bought electricity by the company during the deal.
PPAs are highly demanded by big companies. Since, it ensures a long-term visibility on their electricity bills (usually between 10 to 20 years). Additionally, It gives a concrete valuation of the green origin of produced electricity and CSR (Corporate Social Responsibility ). It also demonstrates the commitments of large companies, engaged on a sustainable development path.
On the other hand, this kind of agreement secures producers’s investments and facilitates the financing of new renewable generation capacity, when the public subsidy is not an option or available.Moreover, PPAs can allow the further financing of facilities such as; maintenance, rental costs, etc. Especially, when the public subsidies come to an end and the electricity prices on the market are highly uncertain and risky to keep the generators alive.
Today, the French onshore wind farms shear, representing 1200 MW production capacity are concerned by this particular situation and could be abandoned for new projects. Since, It will no longer benefits from the term “15 years purchase obligation contract ” made with EDF (mechanism comparable to an energy subsidy as tariffs were guaranteed by the French energy law).
In conclusion, the PPAs have the advantage of accelerating the development of renewable energy production, without the need for public subsidies. Therefore, The PPAs can play an active role towards CO2 emission reduction objectives at local and globale scale, with the lowest cost to public financing.
In the long term, it is likely that renewable energy production sources will become more competitive, which would make it possible to predict full financing of renewable installations by PPAs. Meanwhile, the evolution made by the Regulatory Framework for Renewable Energies in France suggests the upcoming development of corporate PPAs in the country. In France, as of today, only a handful of such contracts have been signed between (Groupe Boulanger/Voltalia, SNCF Energie/Voltalia; EDF, via Agregio/Metro France).
You can find more information about PPAs in France here (in French) :