PPA settings
The PPA form has two sections. The General section holds the Contract terms, Pricing terms, Settlement terms, and Payment terms tabs, which together set the revenue, profit, and risk allocation between the two counterparties. The Connections section holds the Assets tab and, for Off-site PPAs, the Sales targets tab. This page describes each tab in that order.
Contract terms
The Contract terms tab holds the basic terms that almost every power purchase agreement needs.
Contract status
Use the contract status to track your PPA pipeline. The choices are Draft, Signed, and Started.
The status does not affect the simulation results of the linked assets. It is mainly for filtering and sorting your list of PPAs.
Tensor Cloud does not currently update the contract status automatically from the contract start date.
PPA name
Enter a name for the PPA. This field is required, and the name must not already be used by another PPA in the workspace.
PPA type
Choose between two PPA types, Virtual PPA and Off-site. This field is required.
Virtual PPA
A Virtual PPA (VPPA), often called a contract for difference (CfD), is a purely financial transaction. The offtaker does not own the generation of the linked assets and is not responsible for it. The two parties exchange a fixed-price cash flow for a variable-price cash flow plus the environmental value of the generated electricity.
The IPP, or a third party on its behalf, sells the generation of all linked assets on the electricity markets. The PPA terms then set the amount and direction of a financial settlement between the IPP and the offtaker. The pricing scheme section describes the cash flows under each scheme.
Because a VPPA is purely financial, the offtaker still buys its electricity through the usual channels, and its relationship with its electricity retailer does not change.
Off-site PPA
An Off-site PPA is a physical PPA: the IPP delivers the generation of the linked assets together with their environmental value. This incurs transmission and distribution charges, which you need to account for when you set the PPA price.
Under an Off-site PPA, the offtaker does not own or operate the linked assets.
Off-site PPAs can be very complex, because they involve many bilateral contracts and stakeholders, including the IPP, the offtaker, electricity retailers, and the TSO.
Tensor Cloud has only limited support for modeling the offtaker side of complex Off-site PPAs, because electricity tariffs and retailer agreements vary so widely.
Contract start date
Enter the date on which the PPA takes effect. This field is required and accepts dates between 2016-04-01 and 2049-12-31. Tensor Cloud counts all electricity flows from 0:01 on that day to 23:59 on the last day of the contract.
Contract term
Enter the length of the contract in whole years. This field is required, the default is 10 years, and the contract must end before 2066. PPA terms are usually close to the lifetime of the linked assets.
Tensor Cloud keeps calculating asset cash flows after the PPA contract term ends. Those cash flows contain no PPA settlements and come from market revenues only.
Offtaker
Enter the offtaker's name in this optional field. You can then sort and filter by offtaker in the asset list and in the PPA list.
Manage your offtakers in the stakeholders tab of the Tensor Cloud settings, or add a new one directly from the Offtaker dropdown with Add new.
Entering an offtaker's name does not give the offtaker access to any information in your account, and it does not notify the offtaker that you have linked them to an asset. The field only helps you organize your portfolio.
Pricing terms
The Pricing terms tab controls how the contract price is calculated.
Pricing scheme
Tensor Cloud supports five PPA pricing schemes: Fixed, Fixed inflation escalation, Discount with Floor, Discount with Collar, and Collar. The default is Fixed. The schemes beyond a fixed price let you share risk and reward between the IPP and the offtaker in different ways, and they are worth trying out.
Tensor Cloud supports only pay-as-produced arrangements, the de facto standard for renewable energy assets. Other arrangements, such as volume commitments, are rare in this space and usually need dispatchable assets in the PPA.
Fixed
A fixed-price PPA is the closest to the conventional feed-in tariff. Both parties agree on a fixed strike price that does not change over the contract term and is paid for each unit of electricity the linked assets generate.
Fixed inflation escalation
Under this scheme, the strike price rises every year in line with inflation. The inflation rate is set in the scenario settings.
Avoid assigning assets with different scenarios to the same PPA. Tensor Cloud simulates each asset separately, so one PPA could end up with assets that use different inflation rates.
Discount with floor
Under this scheme, the settlement price is a percentage discount on the reference price defined in the settlement terms, instead of a fixed or escalating strike price. To protect the IPP from long periods of low reference prices, the scheme also sets a lower limit on the settlement price.
For example, if the reference price for a time slot is 10 JPY and the discount to market is 10%, the settlement price is 9 JPY (10 JPY × 90%).
With a floor price: if the reference price is 10 JPY, the discount to market is 20%, and the floor price is 9 JPY, the settlement price is also 9 JPY. 10 JPY × 80% is 8 JPY, which is below the floor price, and the floor price is the lower limit of the settlement price.
Discount with collar
This scheme adds an upper limit to the discount with floor scheme: the settlement price is the discounted reference price, kept between the floor price and the cap price. The floor protects the IPP, and the upper limit protects the offtaker from long periods of high reference prices.
Collar
This scheme sets a cap price and a floor price directly, without a strike price or a discount to market. The settlement price is the reference price itself, kept between the floor price and the cap price.
Strike price
The strike price is the basis for settlements between the offtaker and the IPP.
For example, under a fixed-price VPPA, the offtaker pays the IPP the difference whenever the strike price is above the reference price (hence "contract for difference"). When the strike price is below the reference price, the IPP pays the offtaker the difference.
The Fixed and Fixed inflation escalation schemes use the strike price. It accepts values between 0 and 10,000 JPY. Under Fixed, with Flexible turned on, you can enter a different strike price for each year of the PPA.
Discount to market
The percentage discount on the reference price, between 0 and 100%. For each time slot, the reference price minus this discount gives the settlement price, before the floor and cap prices are applied. The Discount with Floor and Discount with Collar schemes use it.
Cap price
The upper limit of the settlement price, between 0 and 10,000 JPY. The Discount with Collar and Collar schemes use it.
Floor price
The lower limit of the settlement price. Every pricing scheme requires a floor price, between -1,000 and 1,000 JPY. As with the strike price, you can enter a different floor price for each year of the PPA when Flexible is turned on.
Flexible pricing
By default, each price in the pricing terms is a single value for the whole contract term. Turn on Flexible to enter values that change by contract year. Under Fixed inflation escalation, the strike price stays a single year-1 value even with Flexible on, because the escalation already changes it every year.
Settlement terms
The Settlement terms tab controls how the PPA reference price is calculated and how cash flows are split between the offtaker and the IPP.
Settlement market
Choose the market the reference price comes from: Day-ahead (default) or Intraday.
Historically, intraday prices have tended to be higher than day-ahead prices, so choosing the intraday market tends to favor the offtaker in the PPA financial settlement.
Settlement pricing zone
This setting, labeled Settlement pricing area, chooses the pricing zone the settlement price refers to. The options are the system price, one of the 9 regional pricing zones, or Asset grid area, which settles each asset against the price of the grid zone it is connected to. Asset grid area avoids distortions in PPAs whose assets are spread over several grid zones, and it is the default.
Calculation interval
The time interval over which the reference price is averaged. Tensor Cloud currently supports only 30 minutes, which means prices are not averaged. Six-hour and daily averages are planned.
FIP beneficiary
Choose who receives the FIP subsidy payments in the cash flow calculation: IPP (default) or Offtaker. Choosing Offtaker removes the subsidy cash flow from the asset's results.
Payment terms
The Payment terms tab sets how the counterparties invoice and settle payments.
Billing frequency
How often the offtaker is invoiced, in months, between 1 and 24. The default is 1.
Payment term
How long the offtaker has to settle an invoice, between 1 and 730 days, counted either from the End of month or from the Exact day of the invoice. The default is 30 days, End of month.
Consumption tax
The consumption tax rate added to payments, between 0 and 100%. The default is 10%.
Linked assets
The Assets tab lists all assets linked to the PPA. Use Add to link more assets. To unlink assets, select them in the list and press Remove. You cannot add an asset that is already linked to another PPA.
Press Save after you have made your selection.
Sales targets
The Sales targets tab sets, for each grid area, the balancing group that the PPA's assets sell to. The tab is available when enabled for your workspace; contact Tensor to enable it. It appears only for Off-site PPAs.
The tab has one field for each of the nine grid areas other than Okinawa. Each field lists the externally managed balancing groups in that grid area, grouped under Generation and Demand. Select No sales target set to clear a grid area.
If a linked asset is in a grid area that has no sales target, a warning at the top of the form lists those grid areas. The warning does not prevent saving. If you change the PPA type to Virtual PPA, the sales targets are removed when you save.