Power purchase agreements may be little-known outside energy markets, but these long-term deals help businesses stabilise costs and secure a guaranteed supply of wind and solar energy
The war in the Middle East this year has given us a stark reminder of how global events can have a huge impact on domestic energy prices. It follows earlier systemic shocks to global energy supplies, from the oil crises of the 1970s to the energy price spikes in 2021-2023 as the world came out of Covid lockdowns and then grappled with Russia’s invasion of Ukraine.
While each of those dramatic disruptions had a well-documented impact on the consumer market, power-hungry businesses and energy suppliers felt the brunt. That’s why many organisations want to fix their energy costs to avoid price spikes, flatten out the peaks and troughs or volatility and give more certainty over the longer term.
One way of doing this is with power purchase agreements (PPAs). Being familiar with them can give you a fuller understanding of the clean energy grid – how clean energy markets work and how these agreements help companies reduce their carbon footprint.
Put simply, PPAs lock in a long-term price at which a business or supplier can buy energy. The prices may be somewhat higher than the wholesale price, but if the price climbs they can offer significant savings. In this sense, they are much like fixed mortgages. They work for both businesses and energy providers. Businesses like to be able to forecast their costs accurately and energy generators like to be able to forecast their income.
