| Work Detail |
Researchers from Portugal simulated 800 power purchase agreements (PPAs) across eight different contract types and found that contracts with a variable pricing structure achieve higher returns. Their analysis considered net present value, deviation from contract yield, and residual volume as the main indicators. A team of scientists from Portugal has evaluated the performance of various corporate power purchase agreement (CPPA) structures and found that contracts based on a variable pricing structure achieve the highest performance, while those based on fixed hourly profiles offer the lowest performance. The researchers highlighted that CPPAs, despite their success in global energy markets in recent years, expose both electricity buyers and sellers to three types of risk: price risk, which materializes when wholesale market prices fall below contract prices; profile risk, which occurs when cannibalization occurs within the renewable energy sector; and volume risk, which depends on the intermittency and variability of renewable energy production. The companys exposure to these risks depends largely on the combination of pricing structures and electricity profiles negotiated in the PPA, they stated, referring to the novelty of the proposed approach. However, there is a lack of scientific literature that explicitly addresses CPPA risk minimization through different combinations of pricing structures and electricity profiles. In the article “ Efficient power purchase agreement structures for meeting corporate electricity needs with solar energy,” published in Energy , the scientists presented four different power profile structures, two pricing structures, and eight different types of CPPAs. The eight contracts are as follows: fixed-price contracts with a pay-for-production (PAP) design; variable-price contracts with a pay-for-production (PAP) design; fixed-price contracts with a fixed-hourly profile (FHP); ??variable-price contracts with a fixed-hourly profile (FHP); ??fixed-price contracts with a monthly baseload (MBL) design; variable-price contracts with a monthly baseload (BLM) design; fixed-price contracts with an annual baseload (BLA) design; variable-price contracts with an annual baseload (BLA) design. For the PAP CPPA design, which researchers say is more exposed to volume risk, they developed multiple generation profiles based on climate variability. For the FHP CPPA design, they calculated the fixed hourly profile for each month based on the average hourly generation within the same month. For the BLM CPPA design, they calculated the monthly baseload hourly amount based on average monthly generation, while for the BLA CPPA, the profile was based on average annual generation. In general, for each contract type, the main variation among the simulated contracts is the CPPA price and the residual volume risk considered, the academics emphasized. In total, 800 contracts of eight different types were simulated. The analysis was based on three indicators: net present value (NPV), which assesses the advantages a buyer would face by securing part of their electricity through a CPPA; contract yield deviation (CPD), which measures the volatility of the contracts financial performance; and residual volume (VR), which assesses the buyers exposure to volume risk. It was shown that contracts based on a baseload profile have superior efficiency, and buyers were found to benefit from paying a higher price. Their performance was also less sensitive to price negotiation compared to contracts linked to solar generation profiles, the researchers further explained. However, for companies with a higher risk tolerance, PAP contracts may also be viable, as some of them achieved high performance despite their greater exposure to market volatility. Meanwhile, the group also found that FP contracts are ideal for buyers who prioritize financial stability, and VP contracts are suitable for buyers seeking to minimize risk exposure. However, the effectiveness of VP contracts depends on carefully negotiated price ceilings and floors, given their high sensitivity to price conditions, it noted. The researchers concluded that a BLM contract with a VP design offers the best balance between financial performance and risk mitigation. “This contract type achieved the highest mean efficiency scores across the meta-frontier for both output- and input-oriented models and was consistently identified as a benchmark contract by the Date Envelopment Analysis (DEA) model,” they added. “In contrast, FHP contracts proved to be the least favorable CPPA type, offering limited financial and risk management benefits.” Looking ahead, they said they want to investigate the performance of CPPAs with diverse consumer profiles and different technologies. |
