Innovative financing solutions in PPAs for large-scale PV projects

The ongoing turmoil in the electricity markets for more than a year, as well as new EU requirements to reduce carbon footprints and greenhouse gas emissions, have contributed to businesses looking for solutions to ensure a stable energy price and reduce emissions. The instrument for meeting both of these goals is the PPAs.

The Polish PPA market is still at the beginning of its development path, so the most popular in Poland are simple PPA structures for longer terms based on the sale of energy at a fixed price or indexed for inflation, often according to the model of the so-called “PPA model”. Pay-as-produced. More developed markets, where PPAs are no longer new, are looking for more sophisticated solutions, both in terms of contract structures, pricing structures and the use of storage technologies. Below we point out some of the leading trends emerging in developed PPA markets, which, according to A-RES experts, may soon catch on here as well.

Formation of purchasing groups to acquire electricity

The growing interest in green energy among smaller consumers has enabled the formation of purchasing groups in the market. Entities affiliated in the form of a purchasing group have greater negotiating power and share the risks and rewards of signing a PPA. Pooling buyers also reduces the costs arising from the preparation of PPAs and diversifies credit risk for the generator.

Sharing the risk of price volatility

The structure of the PPA based on sharing the risk of price volatility is to agree on a lower, fixed rate for electricity and to share profits proportionately in the event of higher wholesale prices or losses at lower price levels (the so-called “profit/loss sharing” mechanism). The commensurate sharing of profits and losses makes it possible to partially hedge both higher and lower wholesale prices. Such a mechanism allows for a dynamic distribution of risks over the life of the contract, which can be beneficial to the survival of the contract, especially when market conditions change significantly.

Shorter PPA term

Currently, due to the lack of standardization and high costs, PPAs are most often concluded for a period of 10 to 15 years. From the perspective of power generators, short PPAs carried a higher commercial risk, leading to an increase in the cost of raising debt or a shorter loan term. Recent uncertainty about long-term market conditions has led to greater acceptability in developed markets of shorter PPA tenors of 3-7 years. Indeed, the banking sector in these markets is taking an increasingly long-term approach to the commercial risks associated with renewables, accepting, among other things. The premise of “rolling” PPAs.

Energy storage facilities as a way to sell energy flexibly

Hybrid PPAs for the supply of energy with a profile modified through the use of energy storage facilities are attracting increasing interest among both consumers and power generators The use of storage facilities makes it possible to store surplus energy and the so-called “energy storage”. “profile shifting,” that is, exporting it to the network in a more “flattened” hourly profile. Such contracts provide the generator with greater flexibility in the power to be delivered, reducing risks on both sides of the deal. Hybrid PPAs make it possible to increase the contracted value of electricity revenues and reduce the degree to which market price volatility affects the project, which, from the banks’ point of view, reduces its risk while increasing bankability.

The new structures presented illustrate the dynamic development of PPAs corresponding to the market’s constant search for new opportunities that meet the expectations of both consumers and power buyers. In the near future, similar solutions may also find application in the Polish market, so it is worth following such trends.

A-RES team