Energy contract terms, in plain English.
60 terms that come up in power purchase agreements, private market supply and hourly matched electricity, each defined without the jargon that usually comes with them.
Terms
Power purchase agreement (PPA)
A long-term contract under which a generator sells electricity to a buyer at an agreed price for an agreed period, typically five to fifteen years. The three common structures are on-site, sleeved and virtual.
Supplier PPA
A PPA held by a licensed supplier, who contracts the generation and passes it to the customer inside their supply contract. The customer gets named renewable power without the credit support, legal cost or contract length a direct deal involves. Common below about 10 GWh a year, and often the right answer well above it.
Corporate PPA
A power purchase agreement between a renewable generator and a business consumer, not a licensed supplier or utility. It fixes a large part of the buyer’s power cost for the term and ties it to named generating assets.
On-site PPA
Generation built on the buyer’s own roof or adjacent land, connected behind the meter. Because the power never enters the distribution network, network charges and levies are avoided on everything generated and consumed on site.
Sleeved PPA
A physical PPA where generation sits elsewhere on the network and a licensed supplier matches the output to the buyer’s consumption, delivering it to their meters and supplying the shortfall. The supplier charges a sleeving fee for the service.
Virtual PPA (VPPA)
A financial contract for difference between a generator and a buyer, settled against a market reference price. No power passes between the parties; the buyer’s physical supply continues unchanged and the difference against the strike price is settled in cash.
Synthetic PPA
Another name for a virtual PPA. The term emphasises that the arrangement is financial rather than physical.
Private market supply
An arrangement where generators and consumers are matched directly within a closed marketplace, without trading through the wholesale market. Buyers see which assets supplied them and generators see who took their output.
Peer-to-peer energy trading
Matching individual generators to individual consumers, usually within a private marketplace platform, so that each unit of power has an identified source and destination.
24/7 carbon-free energy (24/7 CFE)
Matching every hour of consumption to carbon-free generation produced in that same hour, instead of balancing consumption against certificates over a year. Coverage is expressed as a percentage of hours matched.
Hourly matching
The practice of reconciling electricity consumption against generation on an hour-by-hour basis. It replaces annual netting and exposes the hours a buyer’s clean supply does not actually cover.
Time-based energy attribute certificate (T-EAC)
A certificate carrying a timestamp, allowing renewable generation to be matched to consumption in the same hour. The hourly equivalent of a REGO or Guarantee of Origin.
Coverage score
The proportion of a buyer’s consumption hours matched to carbon-free generation. A business reporting 100% renewable annually may have an hourly coverage score well below 100%, and the figure depends on its load shape and region.
Annual matching
The conventional approach, where a year of consumption is set against a year of certificates. The generation and the consumption need never have occurred at the same time.
REGO
Renewable Energy Guarantee of Origin. The certificate issued for each megawatt hour of renewable generation in Great Britain, used to evidence the renewable origin of supplied electricity. Can be sold bundled with the power or separately.
Guarantee of Origin (GO)
The European equivalent of a REGO, issued under the EU framework and traded across participating markets.
Renewable Energy Certificate (REC)
The North American equivalent, issued per megawatt hour of renewable generation and retired to support a renewable claim.
I-REC
The International REC Standard, used in markets without a domestic certificate scheme.
Additionality
Whether a contract caused new renewable generation to be built, or simply redistributed existing output. Matching against generation that already exists can be done from about 2 GWh a year. Contracting generation specifically against your load, which is what makes it additional, needs roughly 20 GWh.
Scope 2 market-based reporting
The greenhouse gas accounting method that allows an organisation to report emissions based on the electricity it has contracted for, evidenced by certificates, instead of the grid average.
Route to market
The commercial arrangement through which a generator sells its output. For most assets this means a PPA with a supplier, utility or corporate buyer, not selling directly into the wholesale market.
Offtake
The purchase of a generator’s output. An offtake agreement is what makes a project financeable, because it converts uncertain merchant revenue into contracted revenue.
Offtaker
The party buying the generation, whether a licensed supplier, a utility, a trading house or a corporate consumer.
Post-subsidy asset
A renewable generator whose ROC, Feed-in Tariff or similar support has ended or is ending. These assets typically need re-contracting and are where the difference between a good and a poor PPA is widest.
Re-contracting
Replacing an expiring PPA with a new one. Best run as a competitive process nine to twelve months before expiry rather than accepting the incumbent’s renewal terms.
PPA tender
A structured competitive process in which a generator’s output, or a buyer’s load, is put to multiple counterparties on identical terms so that offers can be compared on the same basis.
Pay as produced (PaP)
A PPA structure where the buyer takes whatever the asset generates, when it generates it, and carries the volume risk that comes with intermittency.
Pay as forecast (PaF)
A structure where volumes are contracted against a forecast, with the generator carrying the cost of deviation from that forecast. Usually prices higher than pay as produced because the buyer carries less risk.
Baseload PPA
A contract for a constant volume in every period, regardless of what the underlying asset generates. The seller shapes and firms the output to deliver it.
Shape
The profile of generation or consumption across the day and year. Solar and wind shapes rarely match an industrial load shape, and the mismatch has a cost.
Imbalance
The difference between contracted and actual volumes in a settlement period, and the cost of correcting it. The PPA determines which party carries it.
Capture rate
The proportion of the average wholesale price that a generator actually achieves, given that it produces when others of the same technology also produce. Solar capture rates fall as more solar is built.
Cannibalisation
The effect of increasing renewable capacity depressing wholesale prices in the hours that technology generates, reducing capture rates across the fleet.
Strike price
The agreed reference price in a virtual PPA or contract for difference, against which the market price is settled.
Floor price
A minimum price guaranteed to the generator, below which the offtaker makes up the difference. Often traded against a share of the upside.
Collar
A structure combining a floor and a cap, sharing both downside protection and upside between the parties.
Contract for difference (CfD)
A financial settlement against a reference price. Used both for the UK government support scheme and, privately, as the mechanism inside a virtual PPA.
Basis risk
The gap between the reference price used to settle a virtual PPA and the price the buyer actually pays for their physical supply. Small for long periods, then not.
Sleeving fee
What a licensed supplier charges to sit between generator and consumer, matching output to load and handling settlement.
Top-up and spill
Top-up is the power a supplier provides when generation falls short of consumption. Spill is the surplus sold back when generation exceeds it. Both are priced in the contract and both matter.
Embedded benefits
Payments and avoided charges available to distribution-connected generators for reducing demand on the transmission network. Valuable, contested, and subject to regulatory change.
TNUoS
Transmission Network Use of System charges, levied for use of the high voltage transmission network. A significant and volatile element of an industrial electricity bill.
DUoS
Distribution Use of System charges, levied for use of the local distribution network.
BSUoS
Balancing Services Use of System charges, recovering the cost of balancing the system in real time.
Curtailment
Generation reduced or stopped at the instruction of the network operator, or because prices are negative. Who bears the cost of curtailed volume is a core PPA term.
Negative pricing
Periods when wholesale prices fall below zero because generation exceeds demand. Increasingly common in high renewables systems and a growing PPA negotiation point.
Half-hourly (HH) data
Consumption measured in half-hour settlement periods. Essential for modelling any PPA, because the annual total tells you almost nothing about how a contract will actually perform.
MPAN
Meter Point Administration Number, the unique identifier for an electricity supply point in Great Britain. An export MPAN identifies a generation connection.
Grid connection
The agreement and physical connection allowing a generator to export to the network. Connection dates drive the timing of any offtake process.
Battery energy storage system (BESS)
Storage used to shift generation between hours, capturing surplus when generation exceeds demand and dispatching it when it does not. Central to raising hourly matching coverage.
Dispatchable generation
Generation that can be turned up or down on demand, such as hydro, anaerobic digestion, energy from waste or storage. Worth more in an hourly matched market than in an annual certificate market.
Anaerobic digestion (AD)
Generation from biogas produced by breaking down organic material. Typically dispatchable and often post-subsidy, making it well suited to hourly matched supply.
Credit support
Security required by a counterparty, such as a parent company guarantee or letter of credit, to cover exposure over the life of a contract.
Mark to market (MtM)
Valuing an open contract against current market prices. Thresholds in a PPA determine when additional collateral must be posted, sometimes at the worst possible moment.
Third party intermediary (TPI)
A broker, consultant or adviser acting between energy customers and suppliers or generators. Export Energy is a TPI, paid by commission, by fee, or by both sides of a transaction.
Exempt Supply Notification Agent (ESNA)
A party agent role introduced by BSC modification P442. It calculates licensed and exempt volumes on a metering system separately and submits them to central settlement systems, so exempt volumes can be kept out of the levy calculation. More on P442 supply.
Licence exempt supply
Supplying electricity without a full supply licence, permitted within defined limits. Used in private wire and some on-site generation arrangements.
Private wire
A direct electrical connection between a generator and a consumer that does not use the public distribution network, avoiding the associated charges.
Smart Export Guarantee (SEG)
The scheme under which licensed suppliers pay small-scale generators, mostly domestic solar, for electricity exported to the grid. Not related to corporate PPAs, despite the shared vocabulary of exporting energy.
Renewables Obligation Certificate (ROC)
The legacy support scheme for large-scale UK renewables. Assets coming off ROC support are prime candidates for re-contracting.
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