Renewable Energy Contracts: Future Trends and Insights

We delve into the changing landscape of PPAs, including the technology and policies that are influencing and shaping these types of contracts. 

Risk Management and Security in Future Renewable Energy Contracts  

Purchase Power Agreements (PPA) contracts are evolving to manage price and supply risks, usually by attempting to balance the volatile nature of renewable energy with a stable, fixed price for energy that withstands the peaks and troughs in the market caused by increased or decreased energy supply and consumer demand. They might do this by engaging certain financial tools that harness ai to reduce risk to the renewable energy procurer. 

As PPAs can offer risk to a renewable energy buyer, hedging is a financial method to mitigate volatility. Hedging does this through buying energy at a fixed price to avoid fluctuations in the market as well as forward strategising and examining swaps and options.  

Traditional PPAs tend to offer long-term stability vs. short-term flexibility, though flexible versions are becoming widespread as PPA agreements become more common throughout the renewable energy market.  

Increasing Flexibility in Contract Terms 

While traditional PPAs offer little flexibility in return for higher cost savings, there is an emerging shift from traditional long-term contracts to more adaptable agreements. Long-term renewable energy contracts tend to fix prices over a long period because it allows both parties financial security: the energy procurer benefits from a fixed price for energy over a certain period, while the energy producer enjoys long-term financing for a renewable project.  

However, more flexibility can often mean more competitive prices as more tailored, nimble contact agreements respond to changes in the market more quickly. We take a look at some of the lesser-known PPA contracts that may provide more flexibility and potentially more opportunity: 

Rigid PPA Agreements - Bundled & Fixed PPAs 

Common PPAs of standard construction tend to be fixed, which means that they offer the security of fixed-cost energy for a certain period of time, for example, a decade. As a renewable energy procurer, you’ll have the freedom to initiate energy planning and budgeting for business as you’ll know exactly how much your energy costs will be for the term of your contract. Fixed or bundled PPAs tend to be simpler portfolios to understand and manage, with lower risks involved. However, if renewable energy prices drop, your contracted price will remain the same, meaning you won’t benefit from reduced pricing.  

Flexible PPA Agreements - Floating, Hybrid and Market Following   

More complex in nature, entering potential flexible PPAs should always be accompanied by sound financial advice from a financial advisor. Flexible PPA arrangements have the potential to help you to balance the volatility of the market with the opportunity of cost savings. Entering flexible PPA agreements can allow you to combine different types of PPA elements – for example, combining a fixed price energy source with a variable one – renewable energy types – for example, solar and wind – as well as combining fossil fuels with your energy portfolio to balance risk. This is called portfolio diversification and spreads your risk over several energy options.  

Emerging Power Purchase Agreements (PPAs) trends 

As the landscape of power purchase agreements begins to shift, it’s obvious that large corporations are driving demand for renewable energy. One of the biggest investors in PPAs last year was Amazon, spearheading the USA’s share, which was estimated to be the country with the largest PPA market in the world during 2023. This follows a historical trend of large corporations' interest in PPAs - initially, it was organisations like Amazon, Microsoft and Google that pioneered the adoption of PPAs. The RE100, a 250+-strong global association of companies dedicated to 100% renewable energy pre-2050, also includes members such as Facebook, Sony, Nike and BMW.   

Technological and policy impacts on corporate renewable energy contracts 

As digital technology advances, so does its impact on renewable energy contracts, as it provides clarity, security, and speed. As policies evolve on both a regional and a global basis, their influence on the strategy of renewable energy contracts becomes more apparent.  

Digital Transformation in Contract Management 

New developments in digital tools include the advancement of the Internet of Things (IoT) to realise the concept of connected plants. The benefit of connected plants is the ability to diagnose machine health issues before they occur, potentially with the help of artificial intelligence to predict failures based on patterns in collected data, ensuring compliance in PPA contracts and delivery of energy against expected targets. Another digital advancement is the use of blockchain in PPAs. Blockchain allows transparency across PPA contracts, automating smart contracts that secure a price based on actual energy use, lessening reliance on energy brokers.  

Evolving Regulatory Frameworks 

Developing governmental policies and regulatory frameworks tend to favour the rollout of renewable energy, making it easier for renewable energy contracts to be drawn up and entered. For example, the Renewable Energy Directive, introduced in 2009 and currently in its third iteration, aims to address climate, energy, and environmental challenges across Europe by reducing the amount of carbon emissions created in Europe. In 2023, developments around the Renewable Energy Directive Power positively favoured PPAs, which made it easier for businesses procuring renewable energy and the renewable plants that generate renewable energy to adopt PPAs. 

In the evolving renewable energy landscape, PPAs are essential for managing risks and securing long-term energy stability. As flexibility, technology, and regulations advance, businesses can leverage these contracts for greater financial and operational benefits. Strategic planning is key as renewable energy contracts continue to adapt to market demands.