A PPA (Power Purchase Agreement) is a long-term contract (lasting between 1 and 20 years) between an energy producer and a company. 

For the duration of the contract, the company purchases energy at a pre-agreed price. Although mostly used for renewable energy systems, PPAs may also be used for other energy technologies. The agreement is entered into by a producer (the owner of a power plant), a provider or wholesale supplier, and a client—typically a manufacturing business with high energy consumption. PPAs facilitate the transaction of energy, as companies can meet their sustainability targets more quickly while saving on energy costs and avoiding price fluctuations. Thanks to the PPAs, those realizing the plant know in advance how long it will take to recover their investment and what earnings to expect in the future. 

PPAs facilitate the provision of higher amounts of renewable energy, while saving CO2. This way, your company can make a difference and play an active role in the future of renewable energy. 

The advantages for both parties are clear: PPAs lower volume and price risks linked to volatile market prices and ensure a long-term coverage of the consumers’ energy requirements[SG1] , which in turn means a guaranteed cash flow. There are several types of PPAs, but they generally fall into three categories: On-Site, Off-Site, and Synthetic (or Virtual).

On-Site PPAs
On-Site PPAs require the producer and consumer to be physically close. The buyer can purchase (and be provided) the energy directly from the producer, which means cutting the costs of using the public grid. This type of contract is ideal for companies that wish to externalize the investment risk by purchasing energy produced in a facility located on their own premises. 

Off-Site PPAs
Off-Site PPAs don’t require the power plant and the end consumer to be physically close to each other (unlike On-Site PPAs). This type of contract allows the producer to take advantage of both localization for specific types of energy and scale economies by executing agreements for partial volumes with different customers. [SG2] The object of off-site PPAs is the balanced purchase of a certain amount of energy produced in the plant. The purchased energy is provided through the public grid, thanks to balancing groups. The producer must ensure the energy produced in their plant is assigned to a specific balancing group, of which the purchaser is a member. The purchaser, by paying a fixed price agreed upon in the PPA, regularly [SG3] obtains from the supplier the renewable energy guarantees of origin. 

Synthetic (or Virtual) PPAs
Synthetic (or Virtual) PPAs are purely financial agreements. Their peculiarity is that there is no physical supply of energy from the source to the consumer. [SG4] Synthetic PPAs are modelled on contracts for difference. Under a Synthetic PPA, the energy producer sells all the electricity produced in their facilities on the Power Exchange market.

The parties in the PPA agree upon a strike price for the amount of kWh produced in the plant. If the price received by the producer at the Power Exchange is lower than the strike price, the purchaser pays the difference to the producer. If the Power Exchange selling price is higher than the strike price, the producer pays the difference to the purchaser. This way, the producer always receives the money agreed upon in the PPA and is guaranteed a stable cash flow.

The purchaser takes on the long-term market price risk, bearing possible losses. Thanks to this type of PPA, companies can purchase renewable energy from a specific project of renewable energy [SG5] production without having to physically receive the energy. Instead, the energy is channeled into the grid and the purchaser obtains credits for the purchased energy, which they can use to meet their own sustainability targets.

Prices are established in two ways:

1. Fixed PPA: the seller and buyer agree upon a fixed price for the renewable energy for a given period.
2. Variable PPA: the price of renewable energy is linked to a market index such as gas or coal price. 

Betel works with both fixed and variable [SG6] PPAs, depending on which type suits best the situation and requirements of its clients.

Opportunities
The electricity forward prices for the year ahead had historically been contained to a few decimals per day or percentage point per week. No analyst could predict the actual spikes in electricity prices, or such a long-lasting upwards trend. Companies have been dealing with unprecedented energy costs, which have risen with unimaginable volatility. For example, in August 2022 the average PUN (National Single Price) reached €543/MWh with hourly spikes of €870/MWh. Even though the 2023 prices have so far gone down, at certain hours the PUN has touched €295/MWh