5 PPA Models Shaping Renewable Energy Procurement in US & Europe

As renewable energy becomes a larger part of power grids across the globe, challenges like negative prices and reduced value for standalone profiles, particularly solar, are emerging, particularly in developed power markets. Market participants generally agree that the risk of negative prices will likely get worse before it improves. Innovative Power Purchase Agreements, or PPA models, are stepping in to address these issues and optimise renewable energy integration.

The RE sector is undergoing significant transformations necessitating a reevaluation of investment strategies and operational practices. In a post on social media, Luca Pedretti, Co-founder and COO of Pexapark, a firm focused on enabling renewable transactions, has highlighted the increased construction, operational, and funding costs, coupled with declining power prices faced by industry. These challenges underscore the importance of proactive revenue management and portfolio optimization to navigate the evolving market landscape effectively. 

In response to challenges, innovative PPA models are emerging as key tools for shaping the future of renewable energy procurement across the US and Europe.

#1 PPAs with Zero-Price Clauses

These agreements include terms that address scenarios where electricity prices drop below zero, specifying thresholds and durations for offtake under such conditions. This approach is gaining traction as market participants seek to manage the risks associated with negative pricing events. For instance, in Germany, negative price risk has increasingly shifted toward sellers, with buyers seeking to offload some or all of this risk. 

By mitigating the financial risks associated with negative electricity prices, these PPAs provide stability for developers and investors. They ensure revenue protection during periods of excess supply, addressing diminishing value for standalone profiles.

#2 Hybrid PPAs

These combine renewable energy sources, such as solar, with storage solutions to offer greater flexibility. While assets are often priced separately, there’s a trend towards “shaped generation” deals, where renewables secure premiums during specific hours. 

By combining renewable energy with storage, these agreements tackle intermittency issues and offer flexibility to meet demand during peak periods. This reduces the impact of declining power prices by enabling energy to be sold at premium times.

#3 Combo PPAs

These PPA models merge wind and solar assets under a single framework, leveraging portfolio effects to enhance value and optimize delivery. By combining different generation profiles, these PPAs can provide a more stable and predictable energy supply. 

These agreements tackle intermittency issues and offer flexibility to meet demand during peak periods. This reduces the impact of declining power prices by enabling energy to be sold at premium times.

#4 24/7 PPAs

An evolution of Hybrid and Combo PPAs, these contracts incorporate advanced energy management to guarantee consistent, composite green energy deliveries, offering higher value than standalone components. 

This model aligns with the growing demand for continuous renewable energy supply and requires sophisticated forecasting and energy management systems. It meets the growing demand for uninterrupted renewable power while maximising revenue and minimising reliance on fossil-fuel-based backup.

#5 Multi-Buyer PPAs

These agreements aggregate smaller buyers to unlock new demand segments. Innovative retailers are leading the charge, reducing transaction costs and creating opportunities for entities that might not have the capacity to engage in traditional PPAs individually. These PPA models allow smaller companies to participate in renewable energy procurement, contributing to broader market growth.

They unlock untapped demand segments, diversifying market participation and alleviating cost pressures on larger players.