Abstract
To comply with sustainability goals, many companies buy green energy to serve their energy demand. This is typically done by engaging in bilateral power purchase agreements (PPA) with renewable energy producers (REP). A PPA can be flexibly structured, but the core principle is that a buyer (company) agrees to buy future energy production of a seller (REP) at an agreed-upon fixed price. PPAs are financially attractive for sellers, providing price certainty, unlike trading in electricity markets. However, PPAs can bring quantity uncertainty for buyers due to the uncertainty of future green energy delivery. This uncertainty in the long-term endangers sustainability targets, and in the short-term complicates reliable and cost-efficient demand matching. Thus, multiple strategies have been used in PPAs to encourage sellers to provide accurate and good-faith predictions of their short-term and longer-term future production. Yet, it has been shown that REPs can have incentives to misreport predicted values. This has discouraged some companies from engaging in PPAs. In this paper, we first investigate how PPA structure and pricing can incentivize REPs to provide more reliable predictions. This shifts the risk of production uncertainty to REPs, increasing the chance that REPs adopt batteries. We further study how having batteries for REPs affects their own revenue as well as the reliability of their energy predictions for buyers. We use analytical and simulation approaches to propose a decision tree for a win-win PPA structure, which improves reliability for buyers while maintaining profitability for REPs.
Highlights
Companies with large energy consumption are under pressure to reduce their carbon footprints
While renewable energy producers (REP) benefit from the price certainty of power purchase agreements (PPA), these contracts might bring energy production uncertainty to the companies
We found that the parameters of a PPA can be chosen to reduce supply uncertainty risks to satisfy the buyer, while maintaining financial attractiveness to the REP
Summary
Companies with large energy consumption are under pressure to reduce their carbon footprints. A renewable-based corporate PPA is a bilateral contract between an energyconsuming company, who commits to buy future energy generation of a REP for predetermined agreed-upon prices [4].1. Such a contract is financially attractive to REPs (as sellers), to finance their generation facilities. In the case the REP owns storage, the proposed decision tree determines PPA pricing mechanisms and structures that encourage storage to be used in a way to benefit both the REP (by improving revenue) and the buyer (by receiving more reliable predictions).
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