Organizations today are increasingly turning to Power Purchase Agreements (PPAs) to meet their energy needs. These agreements enable organizations to secure a long-term supply of energy directly from energy project developers, often at a more stable or attractive rate.

So, what exactly is a PPA? While several forms of PPAs exist, at their core these contracts offer organizations the opportunity to purchase energy at a fixed price over a typical term of 15-20 years. By committing to a PPA, an organization provides essential funding for the development of a new energy generation project while securing energy supply for their operations. As you evaluate the pros and cons of PPAs for your organization, you’ll likely have many questions that can help determine whether they are the right option for your overall energy strategy. Here are some of the most critical questions to clarify in your PPA agreement before you sign on the dotted line.

7 Questions You Should Ask Before Signing a PPA

1. Will a PPA support my company's bottom line?

Though PPAs often provide electricity at discounted and more stable rates than traditional energy supply prices, great care should be taken to ensure that the savings, risks, and benefits have been thoroughly evaluated. PPAs are flexible by nature and structuring the financial terms to support your company's bottom line begins with asking the right questions, such as:

• What will you pay per megawatt hour?
• What are the risks of buying at market rate vs a PPA rate?
• What is the pricing structure over time and how does that help you meet your energy needs over the decades ahead?
• Is there a price “escalator” (a contractual provision that increases or decreases the contract price according to changing market conditions)?
• How much of your electricity usage will be offset by the project and how much will you still need to purchase from or sell back into the grid and at what price?

Engaging with experienced energy experts early in the process can help uncover risks and optimize contract terms for long-term value.

2. Will I receive RECs through my PPA?

The way Renewable Energy Credits (RECs) are treated varies under each PPA, which is why it is important to understand the terms of REC ownership under your contract. In some instances, RECs are not included in the products that are sold under the PPA and are instead sold by the project owner into the compliance market.

Similarly, by financing additional renewable development through a PPA, your company may be interested in reporting “additionality,” which claims the project would not have existed without the PPA and your contribution. If this is the case, ensure that these claims can be verified before entering your PPA.

3. What are the contractual terms?

Besides price and duration, there are several other terms that should be discussed and agreed upon before you sign a PPA. For example:

• When will the project begin commercial operation?
• What is the schedule for delivery of electricity?
• What are the implications for under delivery or over delivery of energy?
• What happens when the contract ends?
• If the project is onsite, who is responsible for removing the system at the end of the contract?
• What happens if the developer goes out of business or if the ownership of your business changes?
• What happens to your PPA if your organization moves to a new location?
• Can your PPA be sold or changed hands without your knowledge or approval?

Be sure to ask pertinent questions and detail the agreed-upon terms clearly in the contract.

4. What kind of risk is involved with a PPA?

Under a typical PPA, the developer is responsible for constructing, operating, and maintaining the project, thereby shielding the buyer from upfront capital costs and repair expenses. However, as with any type of long-term contract, no risk should be overlooked

upon signing. You should understand what happens if your electricity requirements increase over time or if the forecasted energy production is different from the actual production. What happens if the system performance degrades over time? It’s important to understand the risks involved and ensure that all details are included in the PPA.

5. What happens if the system requires downtime?

It is the developer's responsibility and in their best interest to maintain the generating system that supports the PPA. In the case of downtime, from weather, maintenance, or other causes, your PPA should specify what happens.

6. Is there a performance or production guarantee?

The performance and output of generation projects can be affected by factors like weather conditions and equipment malfunctions. A performance or production guarantee, which are typically negotiated, can ensure that you receive a minimum amount of power over the contract's duration or ensure you won’t be billed for more than the system produces.

7. Can I trust this developer?

Price is not the only factor to consider when you are assessing the right developer for your PPA. The quality of the equipment, the reputation of the developer, and the scale of projects the developer has completed are important to consider. The peace of mind and the confidence that comes from working with a trustworthy developer, like NextEra Energy Resources, is paramount for these long-term contracts.

NextEra Energy Resources is the largest energy infrastructure developer in North America. We can work with your company to develop a PPA that meets your specific needs. This includes tailoring the contract term, energy load, and other parameters to align with your unique energy needs. NextEra Energy Resources has a robust portfolio of energy projects. Our extensive experience and diversified project portfolio help mitigate risks associated with project development, construction, and operation.