Off-site physical corporate PPA
In an off-site physical PPA, a power generator develops, owns, and operates a power plant located away from the offtaker’s consumption site. The generated power and renewable energy certificates are sold to the offtaker through a retailer, which needs to be a part of the PPA. The offtaker sources consumption not covered by the PPA either with the retailer sleeving the PPA, through a separate retail contract, or other means.
Key advantages and disadvantages
- Power plant size is not restricted by the amount of space available at the consumption site
- With price being generally fixed for the term of the PPA, both the generator and the offtaker avoid market volatility
- Power to cover the consumption not covered by the PPA must be procured separately
- Facilities where the generated power and renewable energy certificates will be used must be decided in advance
- One of the contract parties needs to take on imbalance risk
Off-site physical PPA vs. other models
| Model | Physical (on-site) | Physical (off-site) |
Physical (hybrid on-/off-site) |
Virtual | Self-wheeling |
| Offtaker receives | Power + RECs | Power + RECs | Power + RECs | RECs only | Power + RECs |
| REC type | J-Credit, Green Power Certificate, or I-REC | Non-fossil certificate | See on-site and off-site information | Non-fossil certificate | J-Credit, Green Power Certificate, or I-REC |
| Retailer required as a PPA party | No | Yes | Yes | No | No |
| Renewable power promotion surcharge | No | Yes | Off-site portion | Indirectly (when procuring power) | No |
| Wheeling charges | No | Yes | Off-site portion | Indirectly (when procuring power) | Yes |
| Limiting factors | Availability of suitable space at consumption site | Availability of suitable land and grid connection | Availability of suitable space at consumption site and grid connection | Availability of suitable land and grid connection | Availability of suitable land, grid connection, and power plant ownership |
Key stakeholders' roles and responsibilities
Generator
Power plant development and ownership: Planning, securing financing and land for, and constructing the power plant; owning the power generation equipment.
Power plant O&M: Day-to-day operations and maintenance of the power plant.
Power and REC sale: Sale of the power and renewable energy certificates generated at the power plant to the offtaker through a retailer.
Retailer
Sleeving: Passing the generated power and renewable energy certificates to the offtaker.
Paying the generator: Paying the PPA price for the sleeved power and renewable energy certificates.
Offtaker
Paying the retailer: Paying the agreed upon PPA price and retailers’ fees (generally fixed JPY per kWh) to the retailer.
Power plant considerations
Location: Power plants used for off-site PPAs are located away from the consumption site. Since the generated power is physically delivered to the consumption site, both the power plant and the consumption site tend to be in the same T&D area. The use of interconnection capacity is required if the power plant and consumption site are located in different T&D areas.
Technology: With limited exceptions, all of the off-site physical PPAs in Japan are using solar generation. That said, off-site physical PPAs using wind generation might become more common once wind assets under the FIP scheme start being commissioned.
Output: Off-site physical PPAs in Japan range from small ones such as CUC Energy’s 104kW deal with the Chiba University of Commerce all the way to deals over 50MW such as Clean Energy Connect’s 70MW deal with Amazon. Larger off-site PPAs oftentimes consist of a portfolio of small, low-voltage solar power plants rather than mega solar power plants due to the lack of large suitable land.
Financial structure considerations
Long-term fixed renewable energy price: An off-site physical PPA generally allows an offtaker to secure a long-term power supply (15 to 30 years) at a fixed price per kWh and a generator to secure stable, long-term revenue.
Sleeving fees: Because off-site physical PPAs in Japan require the involvement of a licensed power retailer, sleeving fees (power retailer’s margin) need to be paid by the offtaker in addition to the power price and other fees.
FIP subsidy: Power plants that are part of off-site PPAs are eligible for the FIP subsidy paid based on the difference between a fixed FIP price and the wholesale market price.
Renewable power promotion surcharge: The generated volume is subject to the renewable power promotion surcharge, which is recalculated once a year and is currently around 3.5 yen per kWh. You can see the development of the surcharge from when it was introduced to this year here.
Wheeling charges: Since the power generated through an off-site physical PPA is delivered to the offtaker’s consumption site through the grid, it is subject to wheeling charges. The wheeling charges vary depending on the involved T&D area(s).
Imbalance risk: Because the power is supplied to the power grid, either the generator, the retailer, or the offtaker need to assume imbalance risk resulting from inaccurate forecasts.
Other considerations
Offloading imbalance risk: While either the generator, the retailer, or the offtaker need to assume imbalance risk, the risk is generally offloaded to a third party.
Securing additional power: Offtakers have multiple options when it comes to securing power to cover the consumption not covered by the PPA. In general, the offtaker needs an additional retail contract. Sometimes, the retailer that is part of the PPA procures the additional required power and renewable energy certificates from other sources and sells them to the offtaker as part of a “100% renewable” plan. Signing additional PPAs or self-generating can be combined with an off-site physical PPA too.
Japan's largest disclosed off-site physical PPAs
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Japan's most recent disclosed off-site physical PPAs
Click on each PPA to see more details.
