What a power purchase agreement actually is.
A long-term contract between someone who generates electricity and someone who buys it, at an agreed price, for an agreed period. Everything after that is structure.
On-site, sleeved and virtual PPAs
The choice is usually driven by where the generation sits relative to your meters, and by whether you want physical power or a financial hedge. Across borders the answer is almost always virtual, because physical delivery stops at the edge of the market.
On-site PPA
Generation is built on your roof or on land beside your site and connects behind your meter. You buy the output directly at an agreed rate.
Why it appeals: the power never touches the network, so you avoid network charges and levies on that portion. Usually the cheapest unit rate available.
What to watch: you are tied to the site for fifteen to twenty-five years, the roof has to take it, and you need to think about what happens if you move or sell.
Sleeved PPA
Generation sits elsewhere on the network. A licensed supplier takes the output, matches it against your consumption and delivers it to your meters, charging a fee for the service.
Why it appeals: physical, traceable power from a named asset, with the supplier handling imbalance and the top-up when generation falls short. The structure most large buyers end up with.
What to watch: you are now in a three-party arrangement. The sleeving fee, the top-up price and the treatment of excess generation all need pinning down.
Virtual PPA
No power changes hands. You and the generator agree a strike price against a market reference. If the market settles below it you pay the difference; if it settles above it you receive the difference. Your supply carries on as normal.
Why it appeals: it works across a whole portfolio, across regions and across borders, and it does not disturb your existing supply arrangements. It is the usual answer for a multi-country estate.
What to watch: it is a derivative and it is accounted for as one. It also leaves you exposed to basis risk between the reference price and what you actually pay.
The vocabulary, in plain English.
REGO, GO, REC, I-REC
The certificate that proves a megawatt hour was renewable, one per megawatt hour, named differently depending on where you are. REGO in Great Britain, Guarantee of Origin across the EU, REC in North America, I-REC where there is no domestic scheme. In every case it can be sold separately from the power itself.
Sleeving fee
What the licensed supplier charges to sit in the middle, match generation to consumption and handle the settlement.
Shape and imbalance
Generation and consumption never match in every settlement period. The mismatch has a cost, and the contract decides who pays it.
Basis risk
The gap between the reference price used in a virtual PPA and the price you actually pay for power. It can be small for years and then is not.
Additionality
Whether your contract caused new generation to be built, or simply moved existing output around. It matters increasingly for reporting.
Embedded benefits
Payments a distribution-connected generator receives for avoiding transmission costs. Valuable, contested, and subject to regulatory change.
A PPA is not automatically cheaper than buying power conventionally. It is a way of swapping an unknown future price for a known one, and of tying your power to a named asset. Sometimes that trade is clearly worth it. Sometimes it is not, and the answer is a well negotiated supply contract instead.
We are perfectly happy telling you that. It is a shorter conversation, but it is a better one.
Wherever you are in the contract, we can help.
Generators, buyers, and the people advising them. The first conversation costs nothing and usually tells you quickly whether there is anything here.