How to talk about your PPA

A Power Purchase Agreement (PPA) is an electricity contract between a renewable energy developer and a company. With a PPA, a company commits to purchasing electricity from a new renewable energy project (e.g., a solar or wind park) at a fixed price for a fixed period of time.  The renewable energy developer builds the renewable energy project as a direct result of the PPA (and other PPAs depending on how much a company buys).

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Note, companies do not directly consume the electricity from their PPA; this electricity is fed into the grid and blends with all the other types of electricity. Rather, companies directly purchase the electricity from their PPA, while consuming electricity from the grid.

Bidding zones are defined geographical areas within which energy exchange can occur. In Europe, these zones are defined based on various criteria, often national borders, but sometimes smaller areas, like Denmark's two bidding zones: DK1 and DK2.

Additionality is a crucial aspect of a PPA. A PPA is considered additional when it results in the creation of a renewable energy project that wouldn’t have been built without the PPA*. By purchasing electricity through a Reel PPA, your company can make the ‘additionality’ claim.

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*PPAs result in new renewable energy projects by providing developers with the revenue certainty they need to secure financing for new projects.

PPAs offer revenue certainty to renewable energy developers by guaranteeing the selling price of future electricity generated by an energy project. This reduces investment risk, thus making it easier for developers to secure financing for new projects.

With a Reel PPA, companies reduce their market-based emissions by adding renewable energy to the electricity grid and receiving bundled Guarantees of Origin (GOs) in return. The renewable energy added is equivalent to a portion of their electricity consumption. With Reel, companies can sign multiple PPAs to match 100% of their electricity consumption with new renewable energy.

Market-based emissions are one of two ways companies measure their energy-related emissions (Scope 2 emissions) under the Greenhouse Gas Protocol. These emissions are based on the electricity and market-based instruments (such as PPAs) companies purchase (in addition to purchased steam, heat, or cooling, which all fall under the ‘energy’ category). These emissions are not necessarily tied the physical electricity consumed by the company.

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When entering a Reel PPA, a company reduces their market-based emissions and adds new renewable energy to the grid, unlike other market-based instruments (e.g., unbundled Guarantees of Origin).

Location-based emissions are one of two ways companies measure their energy-related emissions (Scope 2 emissions) under the Greenhouse Gas Protocol. They are based on the average carbon intensity of the electricity physically delivered to a company (in addition to the delivered steam, heat, or cooling).

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Entering a Reel PPA adds new renewable energy to the electricity grid. This alone is not enough to shift the electricity grid’s average carbon intensity. Changes in the grid’s average carbon intensity are due to the cumulative effect of consumer or supplier choices over time, economics and environmental regulation. For this reason, signing a PPA with Reel is unlikely to significantly impact a company’s location-based emissions, although it does help accelerate the energy transition.

A Guarantee of Origin (GO) is a certificate representing a unit of renewable electricity, usually 1 MWh. Consumers can use GOs to claim that a unit of electricity came from a specific renewable source, like solar energy.

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A renewable electricity project (e.g., a solar park) today produces two commodities: GOs and the electricity itself. GOs can either be sold independently from the electricity they represent (i.e., unbundled GOs), or together with the electricity they represent (i.e., bundled GOs).

Unbundled GOs are sold separately from the associated electricity. Companies can purchase unbundled GOs representing electricity that has already been produced and consumed, sometimes in an entirely different country than the company’s own electricity consumption.

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Purchasing unbundled GOs is unlikely to lead to the creation of new renewable energy production (i.e., they are not additional), and as a result, many corporate commitments to reduce emissions will not have a real world impact (Bjørn et al., 2022).

Bundled Guarantees of Origin (GOs) are sold together with the electricity they represent. They are part of extensive contractual agreements - i.e., PPAs.

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Purchasing electricity through a Reel PPA simplifies the process of claiming emission reductions by automatically including the associated GOs. In contrast, with typical electricity, companies need to purchase extra (unbundled) GOs in addition to the electricity they already purchase to claim emission reductions.