The PPA is a long-term contract (typically 15 years) for the purchase of power from a specific renewable energy generator. The generator / seller agrees to build, maintain, and operate a renewable energy system. The customer typically owns that power and receives the physical delivery of the electricity through the grid. While this is now an established means of achieving a renewable energy commitment, it poses some challenges:
- Corporate entities that enter PPA agreements are often much larger organizations. PPAs can be complex from a financial and contractual standpoint, and there is, therefore, an administrative burden that needs to be assumed. Projected electricity needs, and particular pattern of usage is such that it might benefit from a solution more tailored to its particular needs as opposed to taking on the larger PPA commitment.
- PPAs are commitments to purchase and take delivery of electricity. The agreement is predicated on a certain price per unit of electricity. That being said, that price is compared monthly against a going monthly rate. As such, there will be monthly accounting true-ups depending on the amount of electricity used and on the differential between the cost of generating the power and market rates. these end-of-month true-ups can be significant and can be challenging on two fronts:
- It creates budget uncertainty.
- It places a burden on the accounting department, which has to be ready to make these monthly adjustments to their accounts.
PPA contracts tend to be very complex 70-80 page documents. The administrative, legal, and financial resources required to enter this kind of program are significant.