How to Evaluate Potential PPA Partners

Power Purchase agreements (PPAs) play a crucial role in the ever-expanding renewable energy sector. They have become the preferred way to finance the ongoing transfer of renewable sources. 

PPAs are contractual agreements between energy buyers and sellers that agree to buy and sell energy generated by a renewable asset. They’re usually signed for an extended period of between ten and twenty years. 

Selecting the right partners to reach your goals is crucial. With this in mind, we’ve produced a step-by-step guide to help you navigate your way to establish that you’re choosing the right one.

Why the Right PPA Partner Matters

PPAs are a significant long-term financial investment, and choosing the right one for your needs is critical. There are various reasons why businesses would switch to renewable energy, whether managing long-term energy costs or setting sustainability goals, and the right PPA partner will help you to maximise the benefits to be reaped from your decisions. But PPA Partners should also be there if something goes wrong. Their role in your business risk management plans will be significant.  

Key Criteria for Evaluating PPA Partners

There are many key criteria that you should be taking into account when evaluating PPA partners. 

Financial Stability and Track Record

PPAs usually last for a long time, between ten and twenty years, so you’ll need to know that your partner has a stable financial track record. Good financial health is crucial in ensuring long-term contract fulfilment, and you need to know that any prospective partner will have the stability to deal with any issues you might have down the line. Previous company accounts are available from the Companies House website.

Experience and Expertise in the Renewable Sector

Previous performance in other long-term PPAs can be an excellent indicator of likely future performance. A proven track record in the renewable energy space is an excellent place to start if you want to compare various competing partners against each other. Evaluating a partner's portfolio of completed PPA projects is a good way of establishing your business’s experience with them. 

Technological Capabilities and Innovation

Renewable energy is at the cutting edge of technological development, and you will want your partner to be able to adapt to future changes in a sector that is constantly developing and becoming leaner. Technology already plays a critical role in optimising energy generation and reducing costs. You’ll need to ensure that your PPA partner is on that curve if you want to develop your renewable energy use over time. 

Contract Terms and Flexibility

Cost control is important, and the pricing involved in your partnership will be among your most important incomings and outgoings. But it isn’t the only thing that matters. Always be careful to read the terms and conditions. Be aware of what you’re signing before you put your name on any dotted lines. 

Among those terms will be exit clauses. There may be future changes to your energy needs of which you are currently unaware. The market may change. If you do need to shift your focus, how flexible will your partner be? 

Compliance with Regulatory Requirements

The renewable energy sector is highly regulated, and you’ll need absolute confidence that your PPA partner is adhering to local, national, and sometimes even international regulations. A lack of regulatory compliance can significantly impact the stability and success of any PPA, whether through reputational damage and/or financial loss.

Steps to Conduct Due Diligence on PPA Partners

So, if you have decided to pursue a PPA and it’s now time to select a partner, what steps should you take to maximise your likelihood of picking the right one? 

Research and Initial Screening

Make sure that you start early. Three to six months before the implementation of the Agreement would be a reasonable time period to start. Make sure to compare across the marketplace. You’ll need to check the details of several potential partners to do so. Of course, you can use a broker to determine this all for you, but be aware that although they will make recommendations, the final decision will be yours. 

The criteria for shortlisting candidates may differ according to your exact needs, but you may wish to consider such matters as the volume of generation output purchased and the term of the contract, the pricing structure, their flexibility, and their track record on previous projects similar to yours. 

Request for Proposal (RFP) Process

Creating a Request for Proposal (RFP) for evaluating PPA partners involves several key steps to ensure you select the best partner for your energy needs. Here’s a structured approach that you can follow:

1. Introduction and Background

Clearly state the purpose of the RFP and what you aim to achieve. Provide a brief company overview, including your energy needs and sustainability goals.

2. Scope of Work

Detail the project, including the type of renewable energy, expected capacity, and location. Outline the specific objectives you want to achieve with the PPA, such as cost savings, sustainability targets, or energy security.

3. Proposal Requirements

Specify the technical criteria the PPA partner must meet, such as technology standards, grid compatibility, and performance metrics. Include financial criteria, such as pricing models (for example, fixed or variable), payment terms, and information regarding the partner's financial stability. Request information on the partner’s experience with similar projects, including case studies and references.

4. Evaluation Criteria

You'll want to subdivide this into three areas.

• Technical Evaluation: Define how you will assess the technical aspects of the proposals, such as energy output, reliability, and innovation.

• Financial Evaluation: Outline the financial metrics you will use to evaluate proposals, including cost-effectiveness and financial health.

• Sustainability and Compliance: Include criteria for environmental impact, regulatory compliance, and alignment with your sustainability goals.

5. Submission Guidelines

Specify the format in which proposals should be submitted, including any templates or forms. Clearly state the submission deadline and any milestones leading up to it. Provide contact details for any questions or clarifications.

6. Terms and Conditions

Include clauses on confidentiality and data protection/GDPR. Outline any legal requirements or compliance standards that must be met. Describe the evaluation process, including timelines and decision-making criteria.

7. Appendices

Provide any necessary templates or forms for the proposal submission, along with any additional information that might be helpful for the respondents, such as site maps or technical specifications.

Site Visits and Technical Assessments

Site visits and technical assessments are crucial for evaluating potential PPA partners. These assessments involve on-site inspections to verify the technical feasibility and reliability of the proposed energy projects. Key aspects include evaluating the site’s suitability for renewable energy installations, assessing existing infrastructure, and identifying any potential technical challenges.

During the site visit, experts examine factors such as land availability, grid connectivity, and environmental impact. Technical assessments also involve reviewing the proposed technology to ensure it meets industry standards and regulatory requirements. These evaluations help understand the project’s potential performance, risks, and long-term viability.

Negotiation and Final Selection

Negotiating favourable terms for Power Purchase Agreements (PPAs) involves several best practices. Firstly, thorough preparation is crucial: understand your needs, the market, and the potential partner’s position. Establish clear objectives and a Best Alternative to a Negotiated Agreement (BATNA) to guide your strategy.

Effective communication is key here. Write clearly and concisely in your RFP, use active listening to understand the other party’s interests and leverage power dynamics to find win-win solutions. Building rapport and trust can facilitate smoother negotiations and better outcomes.

During the final decision-making process, evaluate proposals based on predefined criteria, including technical, financial, and sustainability aspects. Involve key stakeholders to ensure all perspectives are considered. Use a structured approach to compare offers, focusing on long-term value rather than just immediate cost savings. Finally, be prepared to walk away if the terms do not meet your needs or compromise your values. This ensures you enter agreements aligning with your strategic goals and risk tolerance appetite. 

When looking at potential partners for a PPA, you must remember that this is a long-term commitment that you should take seriously. Thorough evaluation and due diligence are an essential part of the process. But the rewards for doing so can be considerable, whether you want to manage your energy better or play a role in a sustainable future. Using our guide, you can get yourself ready to be a part of the renewable energy revolution!