The PPA (Power Purchase Agreement) scheme is gaining traction as a business model for expanding PV deployment without relying on the FIT or FIP programs. It is a scheme in which electricity consumers – such as companies, local governments, and individuals – have PPA operators install PV systems exclusively for them and pay the PPA operators the fee based on their electricity consumption.

When the power generation facilities are installed on the consumers’ own buildings or premises, it is referred to as an “on-site PPA.” When the electricity is wheeled from a power generation system installed at a separate location, it is called an “off-site PPA.” 

Electricity consumers are not required to bear the installation or maintenance costs (a model commonly referred to as a “zero upfront cost” model) and can switch to electricity that is cheaper than that sold by electricity retailers. This is made possible by the dramatic decline in the price of PV systems, driven by the global expansion of PV deployment and ongoing technological advancements.

As a result, PPA operators can offer electricity at contract unit prices lower than those of conventional electricity suppliers. Furthermore, since the contract unit price is fixed over the long term, consumers are insulated from future electricity price increases caused by rising fossil fuel costs. While PPA operators can expect revenue from electricity sales over the long term, electricity consumers benefit from not having to make capital investments and from being protected against the risk of electricity price surges. This significantly lowers the barrier to adopting PV power and also contributes to enhancing energy resilience.

In the United States, which does not have a FIT program, the PPA scheme attracted attention from an early date. Combined with tax credits, the PPA scheme has contributed to the spread of PV power generation. Furthermore, virtual PPAs that trade only the environmental value of PV power are also being promoted.

n Japan, while the Ministry of Economy, Trade and Industry (METI) has been promoting expanded PV adoption through the FIT program, the Ministry of the Environment (MoE) established the “Project to promote making renewable energy a main power source/ strengthening of resilience in communities” in FY 2020. When the supplementary budget for FY 2020 was compiled, the project newly incorporated the “utilization of PPAs.” Thus, the introduction of subsidies for the PPA scheme without using the FIT or FIP programs began.

PPA operators face the risk of recovering their upfront cost through long-term fee revenues, and power consumers have had concerns about the new contract format, but the projects have begun to advance as government-supported initiatives. As shown in Figure 1, the progression started with one-off onsite PPAs and moved to offsite PPAs. Through the accumulation of know-how and achievements, their advantages have been recognized, leading to the development of collective, aggregated, and organized installations.

Adoption of the PPA scheme is beginning to spread to major markets of PV power generation: PPAs of public buildings for local governments; PPAs of private facilities for companies; PPAs of residential PV systems for individuals; and PPAs of low-voltage ground-mounted PV systems for large-scale users. With the advent of the PPA scheme, the mindset of power consumers toward introducing PV power has shifted from “introduction aimed at profit through full electricity sales” to “introduction aimed at converting consumed electricity to green power and reducing expenses through self-consumption.” The PPA scheme is poised to become a major driving force for the autonomous adoption of PV power generation.

Today, the introduction of PV power generation is progressing not only through power producers aiming for revenue from electricity sales but also through power consumers themselves introducing systems for self-consumption. While the PPA scheme can accommodate both, the former can advance adoption by utilizing the FIT or FIP programs. However, the latter, which introduces PV systems for converting to green power and reducing expenses through electricity cost savings, requires new measures and mechanisms that promote self-consumption, such as the use of PPAs.

To accelerate the expansion of PV deployment, proactive deployment by power consumers aiming for self-consumption is indispensable, and the spread of the PPA scheme holds a key role. The Seventh Strategic Energy Plan outlines the basic approach to PV power generation as a “distributed resource responsible for self-consumption and local production for local consumption,” “introduction based on harmonized coexistence with local communities and suppression of national burden,” and “pursuit of effective use of roofs and walls of buildings where supply and demand are closely located.”

The PPA scheme embodies this concept, complementing installations not covered by the FIT or FIP programs, and has the potential to create new opportunities for expansion of deployment without imposing a burden on the public.

On the other hand, the current PPA scheme, which fundamentally relies on recovery of costs over the long term by PPA operators, remains limited to large corporations, local governments, and some individuals as power consumers. To ensure smooth expansion of installations using the PPA scheme, it is necessary to urgently establish market-specific PPA utilization guidelines and develop a regulatory framework that allows anyone to use the PPA scheme with confidence and security.

We hope for a deployment approach that uses both the FIT/FIP programs as power generation businesses and the PPA scheme as a means to promote self-consumption as twin pillars. To that end, the PPA scheme should be nurtured as a new foundation for accelerating the deployment of PV power generation.

©RTS Corporation

Figure 1 Expansion of PV deployment via the PPA scheme