How to Optimize PPAs for Solar-Diesel and Wind-Diesel Microgrids

For traditional grid-connected applications, power purchase agreements (PPA) have been streamlined over the years and are common practice now. Often, the main challenge is to adapt them to specific legislations.

In the last number of years, solar-diesel hybrid plants that aim to reduce the diesel consumption of remote commercial and industrial off-takers have become extremely popular. Mining is a pioneer in large-scale microgrids, but there is also an increasing number of renewable energy-based plants in other industries such as cement, food and beverages, textiles and salt. The technology has become mature; falling battery prices make the business case even more attractive. In the meantime, the first large-scale PPAs have been applied in this segment. However, the standard templates for grid-connected PPAs cannot be used as the framework.

One of the main challenges arises from the synchronization of generation and consumption. In the end, the off-takers often do not think in terms of buying a certain amount of electricity. Electricity is only a means for the purpose of reducing diesel consumption. This topic is normally also linked to measurement issues.

As the solar-diesel hybrid is a rather new field, many potential off-takers are not experienced and fear production losses which also need to be covered in PPAs. Other challenges stem from the fact that in many remote locations no alternative off-takers exist in case that the contract partner does not pay. Contracts cannot eliminate this risk completely but mitigate it as far as possible. The worst-case scenario involves the off-taker having to file for insolvency. In the end, the renewable energy provider needs to conduct due diligence activities on the off-taker, both at the group level as well as on the specific operations that will be powered by renewables.

For the operation of hybrid plants, clear responsibilities between the parties have to be defined. Finally, many solar-diesel hybrid applications are built in countries with certain legislative risks that must be considered in the PPA. It is obvious that PPAs for solar-diesel hybrid plants are highly complex.

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Hillig founded THEnergy in 2013. THEnergy is a specialized business consultancy that focuses on innovation in the energy sector, such as microgrids, solar-diesel hybrid, energy storage and hydrogen. THEnergy has developed sophisticated tools to support its clients in product launches and growth strategies. During the last six years, THEnergy has consulted leading multinational utilities, oil and gas companies, and start-ups regarding energy strategy, due diligence, market intelligence, and communication. THEnergy combines Hillig’s previous experiences working at Alstom Power in conventional energy generation and at Innotech Solar. At the beginning of his career, Hillig consulted leading companies from the transport, telecommunication and construction sectors.

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