Financial Power Purchase Agreement

Long-term price risk management.

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Product Features

The Financial Power Purchase Agreement (PPA) is a long-term financial contract in which the seller (i.e. an energy producer) receives a fixed price (which may or may not be the same for each year of the contract) and pays the variable price of the market. In this way, the seller can manage the risk of the future market price. The volume of energy considered in the contract can be baseload (the same amount every hour of the year), monthly fixed profile, a fixed production profile (for example photovoltaic profile zone V in Spain) or a real photovoltaic production profile. Additionally, the contract may include the sale of Guarantees of Origin. Moreover, the price can be structured in such a way as to include additional features such as floors (ensure a minimum price in exchange of a premium), or a combination of floor and fixed price (participation swap).

Flexibility
It can be adapted to the needs of the seller.
Peak factor risk management
It allows ensuring the price of a production profile.
Long-term price risk management
It allows ensuring a fixed or minimum price level in the long term.

 

PPA can be classified and structured according to different criteria:

1) Price structure

  • Fixed price
  • Minimum price (floor)
  • Minimum price with shared margin (fixed price + floor)

 

2) Contractual energy profile 

  • Baseload (annual or monthly)
  • Fixed profile
  • Real production profile

 

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