Many companies already regard Power Purchase Agreements (PPAs) as a central building block of modern power procurement. Others still hesitate, held back by open questions about process and implementation. This article provides the answers: what those responsible for procurement at industrial and commercial companies need to know about PPAs, from consumption analysis through to contract signing — a practical guide.
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Briefly explained: What is a PPA?
A PPA is a power supply contract, typically running several years, between a generator — usually the operator of a wind or solar farm — and an offtaker. When the offtaker is a company, it's referred to as a Corporate PPA.
Increasingly, power traders sit between the two parties. They act as a buffer or intermediary, reconciling the differing needs of both sides. PPAs in which the trader operationally handles the rather complex balancing group management, and commercially takes on the market risks, are known as sleeved PPAs.
Standardized PPAs for industry and commerce are now also available.
At FlexPower, for instance, we don't supply our power customers with the feed-in volume of one specific plant, but rather the feed-in profile of the chosen generation type. That makes the power supply more homogeneous, more predictable, and generally more cost-effective. How this works is explained later in the article.
What advantages do PPAs offer companies in industry and commerce?
PPAs give larger consumers direct access to guaranteed renewable power at attractive prices. For plant operators, they help secure the sale of their power — particularly once the subsidy period ends. With PowerMatch, we at FlexPower bring both sides together.
Does a Corporate PPA supply power when it's needed?
Wind and solar parks don't produce power on demand. In practice, your consumption will rarely match the delivery volume of your PPA exactly. That doesn't mean you'll be left without power, though — but the differing volumes will need to be bought or sold on the spot market.
Forecasting, scheduling, and balancing energy: who handles it?
Scheduling — including generation forecasts and reporting feed-in volumes to grid operators — is normally the supplier's responsibility, whether that supplier is the generator itself or a trader. It tells you, already the day before, at which times your consumption will be covered by the PPA. This may allow you to concentrate energy-intensive processes into those hours. Balancing group management — in particular balancing itself, meaning the procurement of the energy needed to offset positive or negative balancing group deviations — is likewise handled by the supplier.
What happens when delivery volume and consumption diverge?
Based on forecasts, the balancing group manager already knows, the day before delivery, roughly what imbalances to expect. Say the forecast points to a shortfall in the morning: the manager buys the missing volume on the day-ahead market. Over the course of the next day, it becomes clear that power production will exceed demand in the afternoon — so the surplus is sold on the intraday market. The power consumer notices none of this.
An exception arises if the offtaker wants to align its consumption with the availability of PPA power. In that case, coordination between trader and offtaker may become necessary. You can read more on that here...
Do I need my own balancing group for a Corporate PPA?
Even in industry and commerce, most consumers don't need their own balancing group. It's typically only worthwhile for very large consumers — especially those that also generate their own power or offer ancillary services. Other large consumption sites are usually pooled by balancing group managers into larger balancing groups.
Regardless of whether your company is assigned its own balancing group or not, management is essentially always handled by the supplier. As a PPA customer, you don't need to worry about this yourself.
Who pays when delivery volume and consumption diverge?
This is the make-or-break question for any PPA. Corporate PPAs typically follow the "pay-as-produced" principle: the offtaker bears the full production risk, paying for every megawatt-hour produced and financially covering the deviations. Procuring the balancing energy can generate either revenue or costs, depending on whether power needs to be bought in or sold off.
Other models split production and price risk in different proportions. The rule of thumb: the more risk the supplier takes on, the more predictable — but generally also the more expensive — the power price becomes for the offtaker.
With a PPA from FlexPower, we, as experienced power traders, offset the imbalances on the spot market, so you always receive the right amount of power. If the PPA delivers too much power, we sell the surplus on your behalf on the exchange; if it delivers too little, we buy in the shortfall. The resulting revenues and costs depend on the prevailing exchange price of power. How we split those revenues and costs between us is up to you.
Can industrial and commercial offtakers hedge the production risk of a Corporate PPA?
Yes, production risk can be hedged even with Corporate PPAs. Through so-called firming, the power customer is guaranteed specific delivery volumes. A fixed delivery volume for every hour of the year, for instance, is known as a baseload PPA. Such guarantees, however, come at a corresponding premium.
With FlexPower's standardized PPAs, production risk is inherently lower. Through the pay-as-forecast model, we guarantee delivery volumes according to the feed-in profiles of the respective generation type ("shapes") — specifically, what's guaranteed each day is the day-ahead forecast for the wind and solar shapes from enwex.
The advantage: the combined output of all PV or all wind installations in a given region is naturally less volatile than that of individual plants. A cloud may affect a single PV module, or even an entire solar park, but it won't cause a deviation in the forecasted output of all solar parks across a wider area. The same applies to localized lulls in wind or plant outages affecting wind power production. That said, deviating volumes still need to be bought in even with standardized PPAs. Standardized as-forecasted PPAs eliminate the idiosyncratic risk of any single generation asset.
Can the price of balancing be fixed or hedged?
Hedging the entire balancing energy cost is possible. A typical hedging instrument for a PPA is a Contract for Difference (CfD). This provides the power customer with compensation payments for the volumes where power prices deviate from an agreed strike price. A fixed strike price, however, effectively amounts to a fixed price and comes with correspondingly high premiums. It's cheaper to hedge only part of the delivery — for example, through a cap-and-floor model.
Another strategy is to source only part of your power consumption via a PPA and cover the remainder on the futures market using base or peak futures. This effectively lets you "store" currently surplus power on a balancing basis until you need it.
Can I also protect myself against periods of low wind and solar output?
Periods occur when wind and solar installations simultaneously generate very little power — typically on calm, overcast winter days, sometimes stretching over several days. The remaining load then has to be covered almost entirely by dispatchable power plants, chiefly gas, and by imports. Because the most expensive plants set the price in these situations, exchange prices rise sharply and become more volatile.
For PPA customers, such episodes are therefore primarily not a volume risk but a price risk: you can always draw power from the grid, but the volumes your wind or solar PPA fails to deliver during these hours have to be procured at high spot prices. Genuine, multi-day episodes of this kind are rare, but their cost impact is far from negligible.
This risk can be hedged through three levers, which can also be combined. On the volume side, a baseload PPA guarantees a fixed delivery volume for every hour of the year; the production risk then sits with the supplier, reflected in a corresponding premium.
Second, your own flexibility reduces dependence on expensive hours. With demand-side management, you can shift or throttle loads specifically during the — usually well-forecastable — high-price phases. A battery storage system behind the meter works in the same direction: it bridges short peaks and shifts your grid draw, though it cannot substitute for a multi-day shortfall.
Third, the price level can be hedged independently of volume. A volume-neutral hedge — such as a cap, a cap-and-floor, or a Contract for Difference — fixes the price level on a purely financial basis, without committing you to specific delivery volumes: if the spot price rises during such periods, the hedge offsets the difference. Our virtual battery, FlexHL, also counters rising price volatility by shifting power from cheap hours to expensive ones on a balancing basis, dampening the cost impact of price spikes over the course of the day.
Which combination makes sense for you depends on your load profile and your risk appetite — something we determine together during the needs analysis.
Which hedge makes sense for whom?
If you want to produce independently of PPA delivery volumes and offload the price risk, a virtual PPA with a CfD is worth considering. If, on the other hand, you can largely cover your load profile with a PPA or a combination of several PPAs, a virtual battery will generally be the more cost-effective route. It's particularly well suited to consumers who want to offset short-term over- and under-coverage over the course of the day and hand off the associated price risk.
Which Corporate PPAs suit different load profiles in industry and commerce?
With the right PPAs, various typical load profiles in industry and commerce can be replicated fairly well. Solar PPAs, for example, suit manufacturing businesses running two- or three-shift operations. Thanks to the large-scale expansion of solar capacity, shape-standardized PPAs in particular now deliver a relatively constant, well-predictable volume of power during daytime hours. A wind PPA can be a sensible complement for the winter months.
Industries that also produce at night year-round, data centers, or businesses that for other reasons carry a high baseload around the clock are generally better served by wind power. Our PPA configurator lets you see how several typical consumption profiles can be optimally covered by PPAs.
How do I determine my power requirements?
The first step toward a Corporate PPA is a detailed requirements assessment. It's not enough to know how much power you consume per month or per day — what matters more is the load curve over the course of a typical day.
If you're interested in a PPA from FlexPower, we'll assess your requirements for you. This includes a load profile at 15-minute resolution. We also identify flexibility potential within your operation, which helps you make better use of the volatile supply of renewable power — allowing you to significantly reduce your energy costs on top.
How closely do power generation and consumption need to align?
The more closely consumption and delivery volume overlap, the cheaper the power ends up being for the offtaker. That's because balancing out the imbalances tends to cost more than it earns — power on the spot market is cheaper when plenty of wind and solar generation is available, which means you'll mostly need to buy in additional power precisely when prices are higher. This is exactly the risk that's already priced into fixed prices and other hedges.
What's the benefit of making my consumption more flexible?
A flexible power consumption profile is one of the most effective levers for cutting electricity costs. Companies able to reduce consumption specifically during high-price hours — usually early morning and evening — stand a good chance of avoiding expensive spot market purchases. Those that manage to push their consumption above PPA delivery volumes during hours of negative prices can even earn money by taking surplus power off the hands of less flexible market participants.
A typical area for flexibilization is generating thermal energy from power. But production and transport processes can often be shifted in time as well. Where production itself is hard to adjust, battery storage can serve as a physical hedge, adding flexibility to grid draw.
At FlexPower, we're happy to help you uncover and unlock this kind of flexibility potential. Contractually fixed flexibility is factored favorably into our pricing for PPAs, virtual batteries, and other hedges.
How can I use a Corporate PPA for my Scope 2 reporting?
A Corporate PPA can substantially improve your market-based Scope 2 reporting. The prerequisite is that the associated Guarantees of Origin (GoOs) are clearly transferred and cancelled. In that case, under the GHG Protocol's Scope 2 Guidance, the power sourced can be reported on a balance-sheet basis as emissions-free.
How are Guarantees of Origin transferred and cancelled?
Guarantees of Origin are maintained in electronic registries and transferred via clearly assigned accounts. Correctly attributing a PPA in Scope 2 reporting requires that the Guarantees of Origin be contractually and unambiguously transferred, and cancelled in the consumer's own account. This can also be carried out by the supplier on the offtaker's behalf. What matters is a transparent audit trail from the generator through to cancellation at the end consumer.
Frequently asked questions about Corporate PPAs
Individually negotiated Corporate PPAs typically become worthwhile from an annual power consumption of 10 gigawatt-hours (GWh/a). Thanks to our standardized PPAs, we can offer a PowerMatch agreement from as little as 5 GWh/a.
A PPA doesn't have to cover your entire power requirement. It can be combined with existing procurement models, such as a fixed-price tariff. What matters is that the respective delivery volumes and time profiles are coordinated with one another.
Corporate PPA prices vary for several reasons. One is the type of generation: solar power is consistently priced well below wind power. Another is contract design — the more risk the power customer retains, the lower the price tends to be, and vice versa. The delivery period is a further factor.
Physical batteries at the customer's site increase their flexibility to align consumption with the availability of PPA power, allowing them to optimize their procurement costs. Some suppliers — FlexPower among them — also grant customers discounts for existing battery storage and flexible consumption.
Virtual batteries are balance-sheet hedges that nonetheless affect procurement costs in a similar way to physical batteries. Surplus power from a PPA is "stored" on a balancing basis during low-price hours, so that it becomes available during higher-priced hours. Instead of upfront investment costs, ongoing fees apply.
The PowerMatch platform shows registered users both consumers' willingness to pay and the prices at which suppliers are offering power there, giving both sides price orientation across different delivery periods. The contractual terms behind these prices, however, vary considerably. That's why we ultimately broker the right PPA partnerships in person.
We analyze your load profile if you are a customer. Using our PPA calculator, you can get an initial sense of this based on various standard profiles beforehand.
Flexibility is the key advantage. The more precisely a company can align its power consumption with generation, the better the prices it achieves when balancing out imbalances on the spot market. The direct benefit accrues to whichever party bears the production risk — but any company that understands its own flexibility can position itself accordingly and bring it to the table as leverage in negotiations.
A PPA tends to be a more complex contract than a fixed-price tariff from a local utility, and so it requires a bit more attention at the outset. Once the contract is up and running, though, power deliveries proceed just as unobtrusively as with any other arrangement. At FlexPower, we support you through the entire process — from the requirements assessment through flexibility solutions to the final delivery under your PPA.
Renewable power has lower marginal costs, since no expensive fuel is consumed. A wind or PV PPA lets you benefit from that — and in exchange for the certainty that the generator can sell its power, it gives you an additional discount.
Of course, even with a PPA, you'll still end up consuming pricier grey power whenever there isn't enough PPA power available at that moment. But even modest adjustments to your consumption profile can lower that share.
With a fixed-price tariff, by contrast, the power price is independent of the consumption profile — which creates a moral hazard. Consumers who pay little attention to their load profile and draw heavily on grey power are especially likely to opt for fixed-price tariffs, and fixed-price providers guard against this risk with substantial price mark-ups.
PPAs are genuinely complex contractual constructs. There are numerous ways to divide the risks inherent to the power market among the contracting parties, which makes it very difficult for non-experts to fully understand such agreements. With PowerMatch, we deliberately narrow that range of options. This doesn't just make it easier for you to find a suitable tariff — it also lowers administrative costs.
There's a further benefit: if your requirements change fundamentally, we can find another customer for your standardized PPA, allowing you to switch your power supply before the contract term ends.
In the event of insolvency, the PPA may need to be renegotiated, which could result in higher prices. In the event of a physical supply failure, procurement likewise has to be reorganized. This is another advantage of our standardized PPAs: because suppliers are pooled, a single production failure barely registers. What's more, the cost risk in that case sits with us.