Beware of Power Purchase Agreements
Valpy Fitzgerald explains why hidden charges are derailing promises of higher purchase prices for businesses supplying energy into the UK's National Grid under power purchase agreements (PPAs).
Power purchase agreements (PPAs) are an important part of the United Kingdom's energy mix. They support local communities through the supply of renewable energy, helping to take the pressure off the grid and improving energy efficiency within the region. They also provide businesses with an additional revenue source and a means to build upon their sustainability credentials.
Simple in concept, PPAs are contracts that allow people to sell their excess generated power to a licensed energy supplier.
Different suppliers will offer their own terms and conditions, however, there are a few core features that all good PPAs share and that generators that sell their energy need to be aware of. For example, they should accurately reflect the current market price, have clear payment terms, and be easily understood by both parties. There should also be a clear point of contact for any queries or issues.
Embedded benefits are also an important component, as these usually make up around 30 per cent of a total PPA rate. These are the added extras for exporting onto the grid, rather than importing. They are paid by the Distribution Network Operator (DNO) to the supplier, who then passes this on to the exporter. Embedded Benefits can be fixed or variable depending on the type of contract.
The challenge for generators looking to enter a PPA is that there’s a lot of choice when it comes to which supplier to partner with. While this gives generators a greater choice of potential contracts, not all suppliers charge in the same way. This can lead to generators being stung by hidden costs.
One charge that generators need to watch out for is Data Collection and Data Aggregation (DCDA) costs. This lesser-known charge, which covers the cost of onsite data collection, is often not reflected in the initial price. Fees can be around £200 to £300 per annum, which can make a big difference. Good suppliers will include this cost upfront, but it’s sensible to ask about this before signing a new contract. Otherwise, you run the risk of an unpleasant surprise down the line.
Generators should also be aware of Distribution Network Operator (DNO) costs, which are charged for use of, and connection to, the distribution system. These tend to be standard across the board but it’s worth looking out for these in the small print.
Price for the electricity generated and being paid on time continue to be two of the most important considerations for generators looking to set up a PPA. But in the absence of full cost transparency, they run the risk of losing out in the longer term.
Asking suppliers to provide this information upfront, instead of simply luring prospective customers with the promise of high prices, is key. But in all cases, it’s advisable for generators to do their research into potential hidden costs and the level of customer service as these will ultimately result in the best deal.