What is a PPA contract? Understand!

Do you know what a PPA is? It is a type of contract that is becoming increasingly popular among companies, since among the possibilities it offers, they can procure energy at a more affordable price. This is done through a contract with more advantageous conditions.

The PPA contract can be a powerful tool for you to keep your accounts balanced, ensure survival, and increase your company's competitiveness.

Many businesses are not familiar with this instrument and miss out on the benefits it offers. In this content, we list information that explains the concept, operation, categories, importance, how to do a PPA, and more. Stay tuned!

What is a PPA?

Power Purchase Agreement (PPA) is an energy contract signed by a buyer and the project developer. It negotiates conditions such as energy delivery periods, prices, guarantees, payment terms, among other matters.

This agreement is long‑term and has a fixed price. Usually, the purpose of a PPA is the purchase and sale of clean energy. On the other hand, this commitment enables the energy producer to form partnerships to obtain the financing needed to carry out the project.

The negotiation may also involve origin certificates, that is, the sale of “RECs” (Renewable Energy Certificate or Renewable Energy Certificates), in Portuguese. RECs are market instruments that represent the right to social and environmental benefits from sources that generate renewable energy.

How does a PPA work?

The PPA contains several relevant topics. Understand the main ones.

Terms

This refers to the period agreed between the parties, during which the generator commits to registering the energy for the buyer. This term is usually fixed, but may be subject to extensions.

Parties

They involve the seller – which can be a marketer, generator, or an electricity asset (such as Serena Energia’s parks) – and the corporation that is the buyer.

Volume

It is the amount of electricity agreed upon. This volume will be recorded in favor of the buyer in the CCEE system.

Price

Topic that provides the amount to be paid for the electricity that will be generated during the term of the PPA contract.

Renewable energy certification

It consists of the transfer of certificates that prove the electricity originates from a renewable source.

Why is the PPA contract important?

PPA contracts bring a wide range of advantages to the energy consumer, such as:

• The product will be tailored to the customer's profile;

• It is possible to obtain energy at a more affordable, predictable, and stable price;

• It enables investments in new renewable assets — which continuously reduces energy consumption and pollution;

• The company can engage in green marketing, which consists of promoting its sustainable measures to improve its market image.

Price security

Hydroelectric energy is predominant and well developed in Brazil, which makes the country highly dependent on rainfall. However, in recent years there has been a striking change in the rainfall regime due to climate change and environmental impacts. According to the Brazilian Climate Change Panel (PBMC), for example, rainfall will decrease by 10% to 45%, depending on the region of Brazil.

This reduction in rainfall has directly affected the system’s energy generation, causing drops and constant price fluctuations. The best way to avoid price volatility is by opting for long‑term contracts, which is achieved through a PPA contract.

COP-26

This type of contract has gained more relevance in recent years due to the COP‑26 agreement, concluded at the United Nations Climate Change Conference of 2021.

This international climate agreement explicitly references limits on coal use, with Brazil required to reduce greenhouse gas (GHG) emissions by 50% by 2030 and achieve carbon neutrality by 2050.

How to do a PPA?

A PPA contract is drafted in the same way as a standard electricity purchase and sale contract. It must include elements such as the description of the parties, business definitions, object, term, registration of the contracted energy, prices and possible adjustments, invoicing, payment method, guarantees, what to do in cases of force majeure or unforeseen events, among others. The only difference is that a PPA tends to have a longer validity.

What is a successful PPA case?

A great example of a successful PPA case is the energy contract of Serena for the Dutch Heineken, one of the world’s largest breweries. This is one of Serena’s most important long‑term contracts, which develops new projects and implements the group’s renewable assets.

With this new agreement, Serena will supply renewable energy for 10 years to almost all of the brewery’s production in the country. In general, the deal with the giant Heineken is another project aimed at expanding renewable energy consumption in Brazil and significantly contributing to the reduction of about 270,000 tonnes of CO₂ emissions into the atmosphere.

The initiative also carries I‑REC (International Renewable Certificates) labels from the renewable energy parks, which enables Heineken to offset emissions for energy procurement (Scope 2 of the GHG Protocol).

This agreement also marks Serena’s ongoing investment in the Northeast region. This partnership will consist of implementing parks in the region to supply renewable energy that will fully meet the consumption of 17 Heineken brewery plants operating in the country.

By announcing this contract, Serena shows that it is always ready to generate value for its customers, as well as reaffirm itself as an essential partner for the sustainable performance of its commercial partners, aligning them with ESG criteria that are increasingly valued worldwide over time.

See what Fabiana Polido, Serena’s commercial director, says about the matter: “Heineken’s global strategy shows how important it is to forge valuable partnerships in Brazil, and we are proud to close another major project for a company so aware of the importance of clean and renewable energy for its operations.”

She also states: “With this contract, we demonstrate that we are always ready to develop customized and innovative solutions for our clients and help build a society with clean, sustainable, and competitive energy.”

Serena Group, founded in 2008, was born renewable and today is the largest in Brazil in terms of renewable assets. Serena owns the first 100% digital clean energy acquisition platform and is the leading ESG reference in the sector, as it has flagship projects in environmental preservation, as well as social and educational improvements in the regions where it operates.

Present in seven Brazilian states, it has an installed capacity of 1,869 MW, equivalent to the energy consumed by approximately 3.8 million households. Its headquarters are in São Paulo and it has more than 200 co‑entrepreneurs across the country, working with the goal of transforming the world through clean, cheap, and simple energy.

As if that weren’t enough, it operates in all energy sub‑markets and is involved from project development and energy generation to commercialization. Signing a PPA is advantageous for both parties: the consumer and the developer.

Want to learn more about the topic? Check out other content about the energy market on Serena Talks, Serena’s blog!