Power Purchase Agreements for your PV system
Market surplus electricity profitably
Commercial enterprises are often reluctant to realise their own solar installation on open spaces or roofs. One of the questions they ask themselves is: What happens to the excess electricity produced that you don't use yourself? Feeding it into the grid is often not worthwhile due to the low remuneration and complicated billing. Power purchase agreements (PPAs) can be a solution here: These contracts enable plant operators to market surplus electricity directly to customers. This enables them to secure high remuneration in the long term and improve their business case. PPAs also bring advantages in terms of plant financing. Find out here what plant opera-tors and planners should look out for in PPAs and what improvements the new EEG 2023 - adopted in April 2024 as Solar Package 1 - will bring for electricity marketing.
Option 1: Limiting to self-consumption
Option 2: Combining two PV systems
Option 3: Direct marketing via PPAs
What is a Power Purchase Agreement?
Advantages of PPAs for trade and industry
Onsite or offsite? Choosing the right PPA variant
Marketing solar power - these options are available
Regardless of whether you want to install a new photovoltaic system or expand an existing PV system: When planning a project, the most important factors are the correct dimensioning of the system and a suitable marketing model for the surplus solar power. In principle, the following options are conceivable:
1 - Limiting the system output to self-consumption
With this variant, you dimension your PV system from the outset so that the system out-put roughly corresponds to the actual self-consumption. Surplus electricity is therefore limited so that it is not affected by restrictions on remuneration. On request, the experts at Iqony Sens will plan and build your solar system exactly according to these specifications.
However, this limitation on system output is hardly necessary anymore following the latest legislative changes: in 2024, improvements to the German Renewable Energy Sources Act (EEG) were adopted with the so-called "solar package", which significantly simplified the marketing of surplus electricity. The feed-in tariff was significantly in-creased and previous restrictions were removed. For example, system operators were previously only able to feed 50 per cent of the electricity generated into the grid for roof systems up to 300 kW. This "feed-in cap" has been raised: in future, 80 per cent will be permitted.
2 - Two photovoltaic systems combined
The EEG 2023 has also improved the possibility of combining two different types of system: one system that feeds all the electricity into the grid and a second system for self-consumption, where only surplus electricity is fed into the grid. This distinction is particularly interesting for industrial companies with large areas or for agricultural businesses. This is because refitting PV systems is now worthwhile for them, even if their own consumption is low, for example on warehouses or stables. While the partial feed-in system primarily offers economic advantages due to self-consumption, the second system with full feed-in offers significantly higher remuneration.
The EEG 2023 also makes it easier to switch between full and partial feed-in: at the end of each calendar year, system owners can decide whether they want to feed in all of their electricity the following year or use some of it themselves. This "flexi-model" benefits system owners who want to purchase an electricity storage system, for example.
3 -Direct marketing of surplus electricity via PPAs
In order to promote the energy transition, the EEG 2023 has greatly improved the conditions for solar expansion overall. It is now increasingly worthwhile for businesses and SMEs in particular to plan large systems and market the surplus electricity.
Operators of systems over 100 kWp are obliged to sell solar power on the electricity exchange via direct marketers. However, the problem here in the past was that the costs for direct marketing were often higher than the profits from the feed-in. In extreme cases, the surplus quantities were then curtailed instead of being made available to the electricity system. Or systems were dimensioned to less than 100 kW despite the available area so as not to be subject to the direct marketing obligation.
To solve the problem and make the sale of electricity more attractive, the EEG 2023 introduced the new form of remuneration "free of charge purchase": Electricity volumes can thus be made available to the system with-out incurring costs for the operators of the renewable energy systems.
Power purchase agreements (PPAs) play an important role in the direct marketing of generated solar power. These are long-term electricity supply contracts between two partners.
What is a Power Purchase Agreement (PPA)?
In the current energy industry context, this refers to a long-term electricity supply contract between two par-ties, usually between the electricity producer and the electricity consumer. The PPA regulates all conditions for electricity trading between the contracting parties: the trading period, the quantity of electricity to be supplied, the balance sheet processing and, of course, the price. The price can be either a fixed price per kilowatt hour or a price window.
Advantages of PPAs for trade and industry
Power Purchase Agreements (PPAs) secure plant operators stable long-term income thanks to the fixed electricity price. This facilitates the financing of renewable energy (RE) plants via banks. However, as PPAs are complex to structure, they are particularly profitable for large plants with a high investment volume.
In addition, PPAs are a good option for follow-up financing when a statutory subsidy for an existing renewable energy plant expires: they ensure that operating costs such as maintenance and lease are covered, thus enabling better conditions when raising capital on the financial market.
PPAs are also interesting for the other side, the electricity consumers, because they can use them to reduce market price risks. It is primarily large industrial consumers who opt for a power purchase agreement because it allows them to secure competitive and stable electricity prices. Another advantage for customers is that they know the origin of the electricity generated and can position themselves sustainably with certified green electricity.
Onsite or offsite? Choosing the right PPA variant
As it is a bilateral agreement, a PPA can take many forms and must be individually tailored to the parties involved. Due to its complexity, experts should therefore be consulted for the specific drafting of the agreement.
There are basically two types of power purchase agreements: "physical PPAs", where electricity is actually physically supplied, and "financial PPAs" or "synthetic PPAs", where the supply is only recognised on the balance sheet.
The physical PPAs can be further differentiated into onsite PPAs and offsite PPAs:
- Offsite PPAs regulate the power supply away from the plant location (off-site). The electricity producer sells the electricity to a service provider at a fixed price over a fixed period of time. In order to minimise forecasting uncertainties with regard to consumption and generation for the electricity trader, no or only very low self-consumption is permitted. The electricity is either sold on the exchange or directly to third-party consumers. This variant of a PPA can also be regulated with self-consumption. The prerequisite for this is splitting the PV system in or-der to separate feed-in and self-consumption.
- Onsite PPAs are characterised by the fact that the system owner does not feed the generated electricity into the electricity grid, but either delivers it directly to a service provider or delivers the immediately usable quantities to consumers on the same site. However, onsite PPAs can also be concluded directly between the producer and the electricity consumer, without an intermediary service provider. If the energy produced is not sufficient, shortfalls are procured on the electricity market. Depending on how the contracts are structured, there are different levies and surcharges that have to be agreed individually.
Use cases of different PPAs
Both offsite and onsite PPAs can be combined. Here is a possible scenario:
A supplier/consumer, i.e. the owner of a solar system, can use an onsite PPA to sell the electricity generated directly to an electricity consumer (1, right arrow) or to a service provider (1, left arrow).
If the owner produces surplus quantities, these can be fed into the electricity grid via a service provider with an offsite PPA (2). As part of an offsite PPA, the electricity con-sumer then draws the electricity from the grid (3). The remaining electricity from the grid is supplied to the owner of the system (4). The owner is therefore not only an electricity producer, but also an electricity consumer.
Financing with PPA - we advise you!
The Power Purchase Agreement (PPA) model is particularly suitable for financing larger renewable energy systems. Whether it's ground-mounted PV systems, wind turbines or battery storage systems, you can secure your investment for the long term with this financing model. Iqony Trading will be happy to provide you with information on the various types of contract and offer you the PPA solution that best suits your individual needs.
Green PPA with proof of origin
With so-called "Green PPAs", we also meet the increasing demand from companies for green electricity: Iqony Trading handles the marketing and sale of green electricity for electricity producers on the wholesale market or directly to end customers. The buyer receives a guarantee of origin - as proof that the electricity is 100 per cent green, produced in Germany and also avoids CO2 emissions in Germany. Such guarantees of origin will continue to gain in importance on the market.
All-round carefree package with Iqony Sens
Iqony Sens also gives you the opportunity to obtain all services for the realisation of your solar system from a single source: the specialists take care of the planning, construction and management of the system, while Iqony Trading secures you optimum remuneration for the surplus energy with a PPA.
Do you have any questions about our services? Find out more here.
Update: 11 July 2024
Picture: Iqony Sens