Recent studies and reports have highlighted the importance of conducting more PPA deals in order to attain a sustainable society [9,16,17]. The corporate sourcing business in Europe has exploded in recent years. During 2014, the European corporate PPA market developed to a total capacity of more than 8 GW for offsite projects. In 2018, contracts for commercial and industrial onsite renewables totaled 1.3 GW and 2.1 GW, respectively. Over 2.5 GW of offsite PPAs were signed in 2019 alone [18]. The need for sustainability, as expressed through renewable energy projects, arises from a shortage of natural resources, leading the whole PPA theme to new insights and scientific “green” solutions [6]. Corporates act on several motives for trying to obtain power from renewables, but the capability of stabilizing energy costs is crucial for PPA transactions. While decarbonization obligations are frequently highlighted as the initial impetus for considering renewable corporate sourcing, most corporates identify the capacity of a PPA to minimize energy cost volatility and provide long-term savings on energy bills as the critical business justification [19].

Long-term PPAs, the most common agreements, vary between 10 and 15 years, are used by RES developers to ensure the project’s future revenue, and provide lenders a guarantee that their loans will be refunded in order to enhance the project’s feasibility (bankability of the project) in the event of the absence of governmental funding [15]. Nevertheless, risks still exist (e.g., development, volume, performance, etc.), and PPAs can become problematic for both counterparties, as these kinds of deals are brand-new to practitioners [20]. 

PPAs can be introduced into a wide variety of schemes depending on the counterparties’ needs and purposes. The accounting aspect of this sort of transaction also may be complicated, causing the PPA signing procedure to be delayed. The impact on financial statements may be severe, depending on how the agreement is constructed. PPAs can be categorized depending on the offtaker, energy transmission, volume produced, the chosen price mechanism, number of counterparties, and location of markets. Figure 1 presents the most common types of PPAs and highlights in orange and bold printing the most used types in European markets as extracted from interviewees’ expertise along with relevant publicly available reports and articles [18,21,22].

The needs between corporates, industries, and utilities usually vary and are typically explored on a case-by-case basis by practitioners. In most cases, offtakers are interested in implementing sustainability strategies, meaning reducing CO₂ emissions and making environmental claims, contributing to society-related concerns, and achieving financial benefits (TBL). They usually have specific energy needs and seek a PPA with a tailored volume and price structure. Furthermore, contract clauses may vary, depending on the sustainability focus they want to reveal in the PPA deal [5].

Physical PPAs represent a direct relationship between the offtaker and the RES producer, implying that the latter physically delivers the specified energy volume with the help of an energy provider (Figure 2). Virtual/financial PPAs (VPPAs), on the other hand, offer options to offtakers regardless of geographical distance. In these VPPAs, no physical energy exchange is involved, and it mainly includes a net cash settlement of the difference between the market spot price (wholesale market), and PPA agreed/fixed price (Figure 3). VPPAs may be typically used for hedging strategies against future spot price fluctuations [5,23].

Pay-as-produced (PAP) volume structures refer to PPAs in which a fixed tariff is paid for the energy produced, regardless of current or future market prices. It can cover all of the production or a percentage. PAP PPAs tend to be the most popular volume structure across Europe, offering a perfect alternative for the financial security subsidy schemes that may be inclined to fade. RES producers transfer key PPA risks (price, cannibalization, and profile) to the offtaker [24]. However, in regions with the most active growth of renewables capacity, offtakers are finding PAP contracts less attractive, and baseload PPAs are the next phase of commercial PPA structures. Baseload PPA structures offer a fixed delivery production profile. They can be defined in an annual or a monthly profile and are usually chosen from RES producers and off-takers seeking a fixed delivery energy profile. Such a structure includes specific production for each hour of the year/month, constantly throughout the agreed term [25]. A route-to-market strategy is a commercially motivated way of reaching, selling, and transacting to increase revenue and profit within a defined target market or segment. In the route-to-market volume structure, the offtaker bears the volume risk, and there are no delivery profile commitments; the RES producer will receive a lower price for the electricity provided compared to a fixed-volume PPA. Route-to-market PPAs are often addressed to a utility with power trading capabilities [26].

Using a fixed scheme combined with an escalation and–indexation structure, the researchers address the scenario in which the offtaker secures a starting power price that remains the same or, in most cases, rises/decreases according to a contractual profile. The phases can be determined in nominal terms, not including inflation as measured by changes in consumer price index (CPI) in terms of the annual growth rate and in index, or in factual terms by adding inflation indexation. As an alternative, a straightforward predetermined percentage increase/decrease every year may be used. Floating price, market discount with caps and floors introduces a pricing structure in which the offtaker attains a market discount (set percentage or amount) throughout the PPA tenor. In return, the offtaker offers the power producer with a floor or cap price, ensuring a minimum/maximum price for plant output and safeguarding the project’s bankability. This structure is based on a similar approach to the VPPA, under which the parties’ energy payments are subject to the wholesale market price and follow the approach of a contract for difference (CfD) mechanism (Figure 4). Collar and reverse-collar structures present a key difference to the previous structure, which is that there is no discount to market. A collar requires a project to assume more wholesale energy price risk that the offtaker is liable to (minimum and maximum price defined). The RES producer becomes the party at risk whenever the wholesale market price falls below the defined floor price but, in exchange, the producer benefits from an upside when the power market exceeds the defined cap. PPAs that follow this pricing structure express parties’ desire to constrain the volatility of power prices. However, high floor prices can potentially result in a higher agreed PPA strike price. Hybrid structures (% of output) contain a fixed percentage of the production of the RES plant (e.g., 80%) which is contracted at a fixed price. The remaining percentage of the output (e.g., 20%) is contracted at a floating price with a discount to the market. The RES producer is keener to proceed with such a structure as there is the choice to enhance output with wholesale power prices and in sufficient parallel demand to cover the offtaker. The PPA match most likely concludes with large electricity offtakers that are also “vulnerable” to power prices. Finally, in a clawback structure, which is the less popular amongst counterparties across Europe, mainly due to its complexity, the offtaker locks in a PPA price but benefits from downward market price movements, subject to limitations defined in the agreement. Upward price movements are charged to the RES producers until they have clawed back the amount gained by the offtaker (relative to the PPA price). The RES producer faces a loss cap following this, in which the price reverts to the PPA price, providing a floor (also determined relative to the PPA price) to total project revenues for the RES producer. This structure’s philosophy is based on a contractual provision whereby revenues already paid to a counterparty must be returned to the other counterparty, sometimes with a penalty [21,23,25].

Cross-border PPAs (XB PPAs) refer to bilateral contracts between an RES producer and an offtaker who are located in different countries. In principle, the scheme is the same as any other PPA structure but with the added complication of dealing with a cross-border price risk and potentially differing regulatory frameworks. The transmission of energy between countries (physical cross-border PPA) depends on acquiring interconnector physical transmission rights (PTRs) and financial transmission rights (FTRs) at auction. This offers several challenges and might not always be feasible. On the other hand, XB virtual PPAs encourage competition among all market participants. Buyers are persuaded to sign PPAs to mitigate economic risks and make environmental claims. Governments and energy markets are being urged to assist and execute these new transactions, and RES producers construct more efficient projects, regardless of the PPA market present. In a multi-buyer structure, multiple offtakers can form a group and enter a PPA with a large RES Producer. Similarly, a team of RES producers can sign a PPA as a unity. This allows for another vital form of PPAs, multi-producer PPAs, which also combine the benefits of different RES technologies (wind and solar) [22,27].