PPAs are dead; long live PPAs. Falling prices mean that direct electricity contracts for solar power now have a future only as hybrid PPAs, with co-located storage enabling a precisely matched supply. What was once a theoretical new business model is increasingly becoming a reality.
We spoke to Anwar Darwich, Commercial Director at MaxSolar, about the company’s hybrid PPA with DB Energie, the pay-as-nominated principle and the role of battery storage.
Hybrid PPAs are marketing agreements for systems combining PV and batteries, or, more generally, generation technology and storage. What makes this business model unique is that, unlike our direct marketing agreement with MVV – where the PV system continues to be compensated under the EEG – the PPA with DB Energie involves a subsidy-free plant for which we lock in long-term revenues with a buyer who also bears the offtake risk.
I believe this role is becoming increasingly important. While the traditional standalone solar PPA has become established, the solar industry has been under intense pressure for about two years: negative prices, redispatch measures and market-driven curtailments are reducing the amount of electricity that is remunerated. In addition, grid connections have become a scarce resource both here in Germany and across Europe. Hybridization allows for better monetization of the grid connection. It is no longer just about maximizing production but about optimizing grid connection utilization and generation value. That is why I believe that hybrid projects are no longer a niche concept but the standard for the future. The battery becomes part of the project, just like an inverter, for example.
There are different models for marketing electricity: pay-as-produced, pay-as-nominated or pay-as-forecasted (i.e. settlement based on the amount of electricity forecasted the previous day, with the risk of fluctuations in generation borne by the plant operator – Editor’s note). A PV system itself cannot guarantee a baseload profile; consistent generation is simply not possible. Under the typical pay-as-produced model, we therefore paid based on what the sun and weather provided. The weather risk did not lie with us.
A hybrid PPA changes exactly that. Thanks to the flexibilization provided by the battery, we can shift electricity from off-peak to valuable, high-price periods, when buyers perceive the greatest added value. This moves us away from the rigid pay-as-produced model and toward the pay-as-nominated model. We nominate a fixed profile within the buyer’s balancing group and agree to deliver it regardless of the weather. Since a deviation risk remains despite the use of a battery, this risk is assumed by a third party – a so-called direct marketer or optimizer – who, if necessary, evens out the required volume by adding electricity from their own balancing group.
For many buyers, especially industrial clients, reliability and predictability of revenue are paramount. It is not just about affordable electricity but about making it plannable and providing a certain level of assurance. That was our shared fundamental premise from the start because it creates added value for both sides. We are moving away from the traditional model and DB Energie gets the predictability, reliability and flexibility it needs.
In concrete terms, pay-as-nominated means that MaxSolar coordinates the nomination with DB by defining the quantity to be supplied and the price to be paid, including schedules and forecasts. This is relevant for them because it allows them to better manage their own operations – not just at our end but across all buyers – and to supply them with more affordable renewable electricity. Ultimately, that is precisely the benefit of the electricity storage system: ensuring that the required amount is delivered from the source at the desired times.
As you say, the first challenge was formalizing this idea in a contract. Both sides were familiar with traditional solar PPAs and flexibility contracts, but how do you integrate the two concepts? What’s more, we had to move fast because the contractual framework was the first step toward securing financing. Fortunately, from the very beginning, we were in agreement on who could assume which risks. The collaboration was equally constructive and collaborative. The small but important details only became apparent once we had worked through all the business cases and scenarios. What happens if a certain level of availability is not achieved? How do you measure the uptime of a PV system and a battery when – unlike with traditional PV or battery PPAs – a combination of systems is treated as a bundled project? We therefore had to work together to develop the technical parameters because there was no reference case for either side.
Added to this were regulatory uncertainties. While it was clear from the start who bears which risk in the event of negative prices, other questions remained unanswered, for example, how to handle redispatch measures contractually or whether and when the battery could be charged. This depends on the legislator and the grid operators, whose guidelines may still change before the project is implemented. It was helpful to have a partner who was willing to break new ground together and share certain risks. Ultimately, the biggest challenge was to create a blueprint despite the risks that existed at the project, market and legislative levels. We are very satisfied with the result.
For us as developers, long-term revenue security is paramount – especially with regard to bankability because most of us want to secure project financing. This requires a reliable partner who will actually fulfill the contractually agreed-upon responsibilities and, of course, the whole endeavor must make economic sense. For DB Energie as the buyer, on the other hand, supply security and predictability were the most important factors. Green electricity must not only be cost-efficient but also available during the hours when it provides the greatest added value so that they can plan their activities accordingly.
Ultimately, the most important factor for both sides was that we were equally motivated to create this blueprint. At MaxSolar, the reason was that we no longer saw a sustainable future using the old model and had to – and still must – proactively evolve. Buyers in general were motivated because whoever takes the first step benefits the most. The added value is already becoming apparent in our pipeline, where we can use this blueprint for future projects.
Above all, the time required to coordinate and contractually agree on a concept among three parties – us, the buyer and the third party assuming the forecasting risk – should not be underestimated, especially in the absence of an established standard. That is our most important takeaway. At the same time, the market is evolving very dynamically. What is considered a blueprint today may look different in just a few months. We have seen this in other projects currently under negotiation, where multiple solutions to the same problem are being discussed. It requires a great deal of time, resources and coordination – both among the contracting parties and internally with financing partners, shareholders and management.
A second lesson learned is therefore to remain pragmatic. If you can truly simplify complex issues and explain them in a simple way, that is more valuable than discussing every detail and every possible scenario in advance. What matters is that the basic framework is sound and that you stay in close contact with your partner whenever questions or uncertainties arise.
Here, too, it is important to remain pragmatic. Adding an additional technology does not turn a PV PPA into an entirely new contractual model. Ultimately, it still comes down to a power plant marketing electricity and the buyer knowing at what price and during which periods they are willing to purchase that electricity.
I would recommend that industrial clients who are not deeply familiar with the subject matter start by obtaining reliable information. The next step should be to discuss their priorities for green electricity procurement internally. In the past, the response was often simply, “We need green electricity, so let us just sign a solar park PPA,” and this led to many PPAs being signed that did not align with the buyers’ actual requirements. If in doubt, it is therefore worth bringing in an independent expert or consultant – after all, my perspective is that of a marketer. At the same time, it is important to me that as plant operators, consultants, marketers and regulatory authorities in the energy industry, we continue to openly share knowledge. Hybrid PPAs are still new to many market participants today, but they are likely to become the new standard in the next six to twelve months.We should therefore stop worrying about them.
