Power purchase agreements (PPA), including fixed and variable PPAs, are utilized to fund energy projects with no out-of-pocket expenses. This type of project financing makes energy projects more affordable and feasible for businesses of all sizes. This agreement traditionally involves three parties: developer, investor and host customer. The developer is responsible for the designing and building the project, the investor funds the project, and the customer hosts the project on their property. Fixed and variable PPAs are two different options available to organizations looking to fund energy projects, both offering different incentives that can benefit different needs.
A fixed PPA involves when the energy price is set, or fixed, at the beginning of the contract. With a fully fixed PPA, the price is set at the beginning of a contract and not changed for the duration. Other fixed PPA options are available involving readjusting the fixed rate after a certain amount of time to account for changes in the market– these include fixed with inflation indexation and fixed with escalation PPAs.
The primary incentive of fixed PPAs is whether the market fluctuates up or down, your payments won’t budge. This gives businesses peace of mind, long-term price certainty and greater predictability into business operations. Other features of fixed PPAs include:
- Protection against future energy fluctuations
- Fixed price certainty for up to 20 years
- Long-term business foresight
- Simplicity for project financing
- Potential to lock in at a lower than market price
Variable PPAs offer stability in maintaining a discount-to-market price for energy projects. In addition, variable PPAs allow for organizations to profit from energy price peaks. In contrast, in a fixed price PPA you’d receive the same price ($/MWh) for all the power your site generates, in a variable PPA, the price changes, in line with changes on the market.
The primary incentive of variable PPAs in the discount-to-market structure that can provide significant savings from increasing costs, as the contract will always reflect wholesale market conditions. Other features of variable PPAs include:
- Significant, long-term savings for 12+ years
- Clear, discounted costs based on a published index
- Profit from price peaks
- Most suitable for larger organizations who want to sell most of the energy they produce
Interested in PPAs?
With organizations across the country shifting to renewable energy to power their operations, now is the ideal time to consider financing options for energy solutions. Partnering with EnergyLink offers a team of experts in the designing, building and funding processes of energy projects. Let us guide you through the potential economic impact of your project, project cash-flow and other useful data points to inform your project decisions. Click the link below to get started or speak to an expert at (866) 218-0380.
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