What Is A Corporate Power Purchase Agreement

Rules and laws that affect business AAEs must be analyzed on a case-by-case basis, but there may be restrictions on unaffected purchasing power of businesses directly from the alternator or competition rules against a large energy consumer who commits to purchasing power from a single source. This is a long-term fixed-price agreement linked to certain renewable energy production facilities. The duration may vary, but between 10 and 15 years is the most common. As a general rule, this is a direct agreement with a fixed-price structure for the full contract. This reduces the price risk for the share of electricity purchased through AAEs, since exposure to future price volatility is eliminated. As part of a sleeveD AAE, the buyer`s mission is to purchase electricity from a given revolving asset. If this asset does not work as intended, whether due to construction delays or the uncertainty inherent in the supply of certain renewable energy sources, such as wind and solar, the buyer`s electricity needs may not be met. The gap between the supply and supply of electricity is called the risk of compensation. In order to protect against this risk, the risk of compensation is usually mentioned in the agreement between the distribution company and the company. Direct investment in renewable energy projects – companies can invest directly in a renewable generation plant from which the electricity generated can be transferred to the company. However, such an approach often imposes high anticipated capital costs (or financing costs) and requires the company to develop (or contract) significant energy know-how to build, operate and maintain the project and meet all regulatory requirements.

In addition, the greater the distance between such a project and the company`s charging centre (i.e. where electricity is required) than the transportation costs and the technical and regulatory complexities. In the context of a corporate AAE, the buyer has the certainty (depending on the chosen price mechanism) of his electricity price over a given period and thus mitigate the risk of volatile energy prices (subject to the issue of imperfect coverage in the context of a virtual AAE, as explained below).