Digital Renewable Power Purchase Agreements (DPPAs)
More and more, businesses are burdened to prove their sustainability. They buy renewable energy to reduce their reliance on fossil fuels and avoid the subsequent emissions. But right now, proving sustainability is a cumbersome and expensive administrative process.
Gone are the days that companies bought renewable energy through a power purchase agreement (PPA), filed it away in the top drawer and called themselves clean and green. Regulatory bodies, investors and customers want proof that businesses are supported by renewable energy generation 24/7.
What is a Power Purchase Agreement ?
At its essence, a Power Purchase Agreement (PPA) is an approach used to buy renewable energy. Not only does it provide long-term affordability, improved price visibility and budget certainty to help companies manage finances, it can also offer real cost savings. In addition, PPAs are linked to renewable energy sources, proving a company’s dedication to climate leadership — their bid to reduce their negative impact on the environment.
Behind the Meter vs. Grid
Renewable energy PPAs can be sourced from either behind-the-meter assets or grid-level assets. Behind the meter PPAs are suitable for industrial sites that have enough available space to house renewable generation assets like solar PV panels on site. Grid-level PPAs allow off-takers to source renewable energy from large, off-site industrial-sized generation assets like hydropower stations, solar farms, wind farms and battery storage systems.
Physical or Virtual
A PPA can be either physical or virtual. A physical PPA is a contract for the use of electrons directly at grid-level or behind the meter. A Virtual PPA is a financial contract for the renewable attributes of green electrons, not the actual electrons themselves. Because there is no physical delivery of power, the VPPA is a great option for large electricity consumers with a fragmented electric load to support the development of new renewable energy resources.
With a VPPA contract structure, an off-taker ( power buyer) agrees to purchase a project’s renewable energy for a pre-agreed price. The utility-scale solar/wind/hydro project receives the market price at the time the energy is sold into the grid. If the market price is greater than the fixed VPPA price, the off-taker receives the difference. This is referred to as a contract for difference. In this way, a virtual PPA acts as a financial hedge against volatile electricity prices. There are 101 ways to negotiate a PPA with a multitude of energy participants.
PPA Limitations
No matter the type, all PPAs are static. There is no traceable correlation between production and generation matching. It’s filed off in the top drawer, after all. This means, there is no proof that the energy purchased and consumed is totally green.
PPAs can also be cumbersome to negotiate and are not standardised across sites, therefore making emission calculations an arduous administrative process. Gathering all the generation and consumption data to calculate emissions is a full-time role within a global company with fragmented sites.
Digital PPAs (DPPAs)
Digital PPAs (DPPAs) are destined to become the top choice when buying renewable energy. A DPPA (no matter the asset location or commercial type) supports all constructs and commercial models and shows proof of how the renewable energy purchased matches your consumption.
To go a step further, a DPPA allows quick and seamless calculations of scope 2 GHG Protocol requirements. It also enables companies to innovate the way they manage their Scope 3 GHG Protocol. Due to digitising capability, one way of managing Scope 3 is through on-selling the renewable energy they own to their suppliers, taking businesses beyond compliance.
The cost of DPPAs will continue to be far less than any other renewable energy contract out there. Energy providers, be it energy brokers, energy retailers, utilities or independent power producers, will be able to go beyond renewable energy compliance and offer any off-taker the opportunity to reduce and/or eliminate their emissions and prove it without a doubt.
DPPAs are not futuristic. WePower has been digitising PPAs globally for over 5 years with trusted energy retailers, brokers, market facilitators, independent power producers and utilities. The digitised end-to-end approach of buying renewable energy supports calculating GHG Protocol Scopes 2 and 3 easily and readily, helping our customers showcase their climate leadership. Proving sustainability has become an essential part of every business and WePower is part of the transition and transformation.
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