Corporate PPAs – buying renewable power from a specific offsite generator rather than from a supplier's general mix – started as an instrument for very large consumers. The transaction costs simply did not work below substantial volumes.
That has changed, though less completely than the marketing suggests.
Physical or sleeved PPA. Power flows from the generator to you through a licensed supplier who handles balancing, shaping and settlement. You get contracted renewable power and a supplier relationship. The sleeving service costs money and its pricing is often opaque – worth interrogating.
Virtual or financial PPA. No physical flow. You continue buying from your existing supplier, and separately settle a contract for difference against the generator's market revenue. If the market price is below the strike, you pay the difference; above, you receive it. You also receive the renewable certificates.
Virtual PPAs are administratively simpler in some respects but they are financial derivatives, with accounting and hedge-designation consequences your finance team must be comfortable with before you sign. This is a common late-stage obstacle.
Aggregated PPA. Several buyers combine to take output from one project. It solves the scale problem and introduces a coordination problem – who bears what if one buyer defaults or exits, and how credit differences between buyers are priced.
Shape risk. The generator produces on a solar or wind profile. You consume on your own profile. These do not match, and the mismatch has to be settled at market prices. In periods when generation is high and prices are low – which correlate, because high renewable output depresses prices – the value of your contracted energy falls.
This is called capture rate or cannibalisation, and it is the single most underestimated risk in corporate PPAs. As solar penetration rises in a market, midday prices fall, and a solar PPA's realised value falls with them.
Volume risk. Pay-as-produced contracts mean you take whatever the plant generates, including in a poor resource year. Baseload-shaped contracts shift that risk to the generator, at a price.
Basis risk. Where the generator connects and where you consume may settle at different prices in markets with locational pricing. Relevant in parts of the US and increasingly discussed in Europe.
Credit and term. These are typically 10-15 year commitments. Your counterparty needs to be creditworthy for that period, and so do you – generators will assess your covenant, and a mid-market buyer may face collateral requirements.
For most mid-market commercial buyers, onsite generation remains the better starting point. Self-consumed onsite solar displaces the full retail tariff including network charges, which offsite PPAs cannot do – you still pay to transport offsite power across the network.
The sensible sequence is generally: maximise onsite generation, add storage if the load profile justifies it, then consider a PPA for the residual if you have volume and reporting requirements that warrant it.
Going straight to a corporate PPA while leaving an empty roof is common and rarely optimal. The roof is the cheapest renewable energy you will ever buy.