Power Purchase Agreements (PPA) Hedging
Trading at EEX increases security and standardisation of Power Purchase Agreements (PPA) hedging and, as a result, provides the tools to actively support the energy transition in Europe. By hedging long-term price risk via our standard EEX power futures, we enable our members to hedge against the risk of future price changes up to six years ahead.
What are PPAs?
PPAs are long-term contracts between a party generating and selling electricity and a party purchasing electricity. They are specific agreements under which electricity traded between the two parties comes from a renewable energy source, and a company buys the electricity in order to help meet their energy demand.
PPAs are usually necessary to finance renewable energy projects. As such, they are a key enabler of new Renewable Energy developments. Purchasers are attracted by lower prices and the ‘green credentials’ in having their power supply come from 100% renewable sources. PPAs are often fixed for long periods, up to 10 years or even more, to ensure revenue security for the developer.
However, these long-term agreements bear certain risks. Most PPAs are financially settled, which means the price is fixed between the generator and the offtaker, but the actual power produced is sold on the Spot Market. This creates price risk.
In order to mitigate price and counterparty risk and secure long-term cash flows, EEX already offers cleared cash-settled futures contracts up to 6 years ahead in all major European power markets. To enable members to hedge a greater portion of their PPA risk, EEX is currently investigating listing further calendar expiries.