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Off-site, in mind

The most common structure used by these corporations for offsite corporate PPAs is the contract for difference (CfD). The CfD is a financial hedge between the buyer and the seller for an agreed-upon fixed rate for the off-site power. If any variation exists between this fixed rate and the wholesale electricity rate (the rate at which the seller sells power into the wholesale electricity markets), the difference is accounted for and refunded to either the buyer or seller at the end of each month.

The buyer would pay the difference if the wholesale electricity rate is less than the fixed rate, and the seller pays the difference when the wholesale electricity rate is greater than the fixed rate. But there are risks that corporations need to consider prior to moving forward with this structure in a PPA. Some of the risks with the CfD include basis, counter party credit, and power price risk.

Matthew Meares, co-founder and Principal of Development at Virginia Solar notes: “Basis risk is a major consideration when the project and customer are located in PJM or one of the other Independent System Operator (ISO) markets. Simply put, a project typically delivers electrons at point X and the user takes them at point Y. The price differential between these two points is the basis differential. This price differential can be created by transmission congestion, and the location and production of other nearby generation, among other things. The basis differential can change with time. Hence, over the life of a 15 year PPA what historically may have been no difference in pricing between the points may turn into a significant price differential.”

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