The rise of solar energy in the Netherlands offers companies more and more opportunities to make sustainable choices. One of the trends we see is that operators of large solar parks are approaching companies and institutions such as hospitals to purchase electricity through a Power Purchase Agreement (PPA). At first glance, this seems like an attractive option: you can purchase green energy for a fixed price of around 10 to 11 cents per kWh, for a long term of 10 to 15 years. Unfortunately, this is not the full story, as it is comparing apples and oranges.
What is a PPA anyway?
A Power Purchase Agreement (PPA) is a long-term agreement in which your company purchases electricity that is directly generated by, for example, a solar park. These types of contracts seem attractive because they offer a fixed price for sustainable energy, often for a period of 10 to 15 years. Especially in a volatile energy market, such a fixed price can seem attractive, especially if it is a few cents lower than what you are paying now. Hospitals in particular are approached by these types of parties, because they have high electricity consumption and traditionally have a high contract capacity agreed upon with the grid operator. For solar panel operators, this capacity is worth gold in the current times of grid congestion.
A low price, but are you comparing apples to apples?
A price of 10 to 11 cents per kWh sounds good, of course, but it is important to understand how this price is determined. The power you purchase through a PPA is only supplied when the sun is shining—in other words, at times when there is already an abundance of solar power. These are the times when electricity prices are low, simply because there is so much supply. These prices are increasingly negative and the average price during these hours is well below 4 cents per kWh, based on last year. So if you pay 10 to 11 cents per kWh for electricity that is worth a maximum of 4 cents per kWh, you should attach great importance to sustainability, while there are also other options for purchasing green energy.
The real costs are in the ‘expensive’ moments
Although the price for this solar energy seems attractive, there is an important caveat: you only pay 10 to 11 cents per kWh for electricity that is actually generated by the sun. For the rest of the day, when the sun is not shining or is shining less, you have to buy the rest of your electricity from an energy supplier, and this is often done at hourly rates on the short-term market. However, these prices are very unpredictable and can rise considerably, especially at times when demand is high and supply is limited, such as during the hours when less solar power is generated. This applies during the entire winter period and during the evening and night hours. On average, you still have to purchase 70 to 80 percent of your consumption this way. As a result, your total electricity costs will be much higher and more unpredictable. Instead of security, a long-term PPA contract offers financial uncertainty and often higher costs.
However, there are options to purchase the ‘residual profile’ (partially) from an energy supplier at a fixed price. Unfortunately, energy suppliers will charge a significant surcharge for this, which can amount to 10 cents per kWh on top of your delivery price.
If you want to reduce the risk for your energy supplier, it is good to know that there are two types of PPAs. With an ‘as produced’ PPA, you purchase the power exactly as it is produced by the solar park, meaning that you consume varying amounts of power every hour. In contrast, an ‘as nominated’ or ‘as forecasted’ PPA offers more predictability, because you agree in advance how much power you will purchase from the solar park. This form of PPA makes it easier to transfer your residual profile to an energy supplier, because your consumption becomes more predictable. In short, although it is possible to achieve a completely fixed price in combination with a PPA, this will usually be significantly higher than your current supply price.
Cheap or negative price moments also pose a major risk
In addition, you are also obliged to purchase the electricity generated (as nominated or as forecasted) by the solar park. This means that if this is higher than your demand at a certain moment, you will still have to purchase this power and therefore have to sell it again on the short-term market or even on the imbalance market. Here too, you are subject to the fluctuations of the market. of hourly or quarterly rates, and it can therefore also happen that you sell the electricity at negative prices. In that case, you will have to pay to get rid of the excess electricity supplied.
Social responsibility vs. financial considerations
Despite the financial pitfalls, some companies have opted for a PPA with a solar park. Social considerations often played a role here, such as the desire to demonstrate that the company has green ambitions. It is a way to contribute to sustainability and make this visible, both internally and externally. This happened especially in the past, when solar energy still had a higher value. Due to the increased supply of solar parks, saturation has occurred in the Dutch market, which has now caused this value to fall. There are also other options to green your electricity, such as purchasing solar panels for your own use or through Guarantees of Origin (GoOs).
What remains beneficial: Solar panels on your own roof
A PPA is therefore usually not the best financial choice if you want to use solar power, however, it is still a good idea to install solar panels on your own roof. By generating your own power for your own use, you need to purchase less power from the electricity grid, and you also avoid costs such as energy taxes and grid operator fees. In combination with battery systems you can optimize this further. This still makes solar panels a smart investment that structurally reduces your energy bill.
Questions? PowerQ is ready
Are you considering a PPA or would you like to know more about how to make your energy supply more sustainable? PowerQ’s consultants are ready to help you make the right choices. This way you can be sure that you are not only taking green steps, but also making financially sound choices.
Due to the complexity of the energy market, it is essential to stay well informed. So don’t just be guided by an attractive price, but also look at the bigger picture—and don’t forget that we at PowerQ are happy to help!
