Flexible power purchase agreement

PPAs can help companies or grid operators secure the supply or consumption of large amounts of electricity under fixed conditions over a defined time frame. Traditional PPAs, however, lack flexibility and can lock participants into unprofitable or suboptimal situations if prices or markets change. Flexible PPAs (FPPAs) solve this problem by adjusting the agreements’ terms when certain specified changes occur. For example, an FPPA could lower electricity prices for purchasers when heating or cooling demand drops or when supplies of variable renewable energy are high. FPPAs thus not only cover purchasers’ electricity needs, they also add valuable flexibility, increasing revenues for energy producers and enabling grid operators to control the grid more effectively.

FPPAs are well suited for thermal energy networks. A large DHC system could sign an FPPA with a nearby PV power plant to buy all the electricity from the plant, even when the output varies, for example. A district heating system with combined heat and power could set up an FPPA in which it acts as both an electricity generator and consumer. The best strategy depends on the specific market conditions, but the flexibility inherent in DHC systems enables better agreements. ¹³

Flexibility can make PPAs more financially attractive, increasing the incentives for electrifying heating and cooling and installing thermal storage. These agreements thus can accelerate investments in power-to-heat technologies and flexibility sources. They also add another market option for investors and can be combined with less innovative agreements (such as retail tariffs) to diversify financial risks.