Power Purchase Agreements (PPA)
What You Should Know

Is Your Commercial or Industrial Establishment Employing The Smartest Energy Strategy?

The ongoing, soaring costs of energy have prompted a high demand for a way to reduce costs while adapting to the modern needs of an ever-changing industry that requires a dependable and steady access to power. The past ten 10+ years have seen electricity prices growing at a rate even greater than inflation.

In fact, heavy industrial electricity users in Toronto have seen their cost for power increase greater than 50%, which, according to a recent report, has to lead to more than 75,000 job losses in Ontario’s manufacturing sector.  These increases in costs have fueled a widespread interest in onsite power or off-grid technology.  And with advancements in power generation, there are now some very cost-effective alternatives to buying electricity from local utility providers.

In recent years we have seen tech companies like Apple, furniture manufacturers like Ikea and even the most secure data centres invest in off the grid power sources. And although there are many other companies considering the off-grid approach, some don’t have the upfront capital required. This problem has been eliminated by what is referred to as a “Power Purchasing Agreement”.

In this situation, a private power generator company (like T&T Power Group) agrees to install, operate, and maintain the onsite equipment for a particular client for a predetermined monthly fee or per KWe price.  However, unlike with local utility providers, these agreements and prices are fixed for a length of time, providing clients with reliable energy at a fixed cost - making it a win/win for both parties.

Power Purchasing Agreements are complicated and can be used for different types of power generations solutions. This publication is designed to answer the most pressing questions. Below are the topics we’ll be covering. Feel free to jump to a section that you’re most curious about:

  1. What Is A Power Purchase Agreement?
  2. Who Benefits From a Power Purchase Agreement?
  3. Standby Power PPAs
  4. CHP or Prime Power PPAs
  5. Global Adjustment Shaving PPAs
  6. Conclusion

 

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What Is A Power Purchase Agreement?

As discussed briefly above, a Power Purchase Agreement (PPA) is a long-term agreement or contract that administers the sale and purchase of electrical power or energy. This contract, sometimes referred to as an “offtake agreement”, is made between two parties: the power generator and seller (referred to as an independent power producer or “IPP” such as T&T Power Group), and the power purchaser or buyer.  The contractual terms of most PPAs may last five or more years (up to 20).  These agreements can be set up on a monthly fixed fee, a per KWe fee, or a combination of both.  Each circumstance will dictate the best solutions for both parties.


 

Who Benefits From a Power Purchase Agreement?

Any greenhouse, industrial facility, commercial building, or government institution that utilizes significant amounts of electricity can benefit from a Power Purchase Agreement.  There is, of course, an increase in cost for the service in comparison to purchasing the equipment independently.

However, today, a Power Purchase Agreement allows companies in many cases to reduce the energy waste, increase their energy reliability (no longer at the mercy of their local utility), and overall reduce their average cost per KWe.

According to a recent report out of Europe, it is estimated that businesses could save around 38 billion US dollars while also reducing their harm to the environment by going off-grid.  So, whether you are saving 50% with the ability to purchase your equipment immediately, or are saving 35% by entering into a PPA - you’ll be saving a great deal of money.


 

Standby Power PPAs

Standby generators are essentially backup systems that ensure you never lose power again.  These systems are required in many industries like healthcare centres and others because it just makes good financial sense.  For example, owners of commercial buildings know the importance of proper lighting, heat, security systems, AC and technology/computing capabilities in order to keep customers and tenants satisfied. As well, many agricultural farms can’t afford to lose power as their livestock or crop require this energy to stay healthy and vibrant.

However, like all power systems, this technology comes at a hefty cost and does require a significant upfront investment.  But by engaging in the right power purchasing agreement, many business owners can ensure their investments remain safe.

At T&T Power Group, these arrangements are typically based on a monthly fixed rate for fixed hours of usage agreed upon by both parties.  Standby PPAs are the same as car leases, all except for one factor: with a PPA, all preventative maintenance and servicing are included in your monthly fee.  Essentially, this an ideal solution for environments that could benefit from the installation of a backup system, but lack the capital funds to invest in this solution today.


 

CHP PPAs & Prime Power PPAs

CHP stands for “Combined Heat and Power”. This power generation system is an energy efficient technology whereby fossil fuel generators create electricity, then the equipment captures the heat from the combustion process to create steam or hot water.  This allows those employing the system to use the hot water and steam for heating or cooling living spaces, for personal consumption, or for industrial processes.

Unlike with conventional fossil fuel power generation (which only generates at 33% efficiencies, leading to unnecessary waste), Cogeneration systems (CHP) can achieve an impressive 90%+ efficiency rating - making this system one of the greenest methods for producing power with fossil fuels. This is due to the fact that the system requires less fuel to meet its energy demand, lowering greenhouse gas emissions.  These increased efficiencies also have the added value of lowering the energy costs of the buyer/customer.

Some other benefits of CHP include the ability to limit one's exposure to significant energy price spikes while reducing the potential for business interruption. There is also the possibility for CHP to reduce the need for new heating systems. In the right agricultural situation, these efficiencies and benefits of CHP can be even further elevated with the capturing and reuse of the carbon dioxide exhausted from the generators.

Prime Power generators are designed to carry heavy electrical loads and operate 24/7, 365 days a year.  These generators are the perfect solution for organizations looking for all of the benefits associated with CHPs without the need for heat. As one can imagine, the capital requirements for prime power or CHP systems are even more expensive than Standby systems.  For example, T&T Power Group is currently installing a 2MW, 3 million-plus project close to London, Ontario. To ensure organizations are able to adopt this technology immediately without delay, they are able to engage in a CHP PPA, or a Prime Power PPA.  These programs are typically priced based on a per KWe fee for a contact period in an excess of 10 years. Like with the Standby PPA, all the equipment and maintenance is included the KWe fee and is taken care by the private power provider.


 

Peak Shaving PPAs

That notorious Global Adjustment fee that was incorporated into to your electricity bill over 10 years ago can be significantly reduced, oftentimes by 50% or more, with a solution known as peak shaving.  Unlike with CHP’s, this solution is a benefit for anyone with significant electricity bills.

Peak Shaving is best done with an an on-site (Standby or Prime)  generator during periods of high demand. This type of generator can be made to run automatically during high demand hours, or for the hours whereby it is known that the global adjustment measure is likely to be  completed.

Although installing this equipment may seem like a costly investment initially, given the generators are only used for short periods of time, using an on-site generator to assist in Peak Shaving can result in substantial savings long-term. In a recent research report by a private company they concluded that a typical 3 MW on-site power system installed in Ontario has the potential to save the organization more than $1.7 M annually.

Peak Shaving PPAs are typically priced more like Standby Units, with a fixed monthly fee for XX amount of hours.  However, like all PPAs, this allows organizations to start receiving energy saving immediately after installation regardless of the current available capital.


 

Conclusion

The idea of signing a Power Purchase Agreement for your organization may seem intimidating initially, as there are many options available with regard to power sources/generators and technologies. While the smartest energy strategy for your facility will require some thoughtful planning   A cost-effective and efficient energy plan is something that power customers everywhere should strive to achieve. Td the right Power Purchase Agreement with your power provider likely is one of the best investments you can make.

benefits of a power purchase agreement