Power Purchase Agreement Market: Introduction
- Power purchase agreement is a financial agreement between electricity producer, developer, and end-user. The agreement defines the conditions of the agreement. This includes the amount of electricity to be supplied, prices, and penalties for non-compliance.
- Power purchase agreement typically works for the duration of 10 years to 25 years. Developer remains responsible for the operation and maintenance of the system for the duration of the agreement.
- Power purchase agreement provides two benefits: electricity can be supplied physically or it can be shown on a balancing sheet. Companies with high power consumption are now implementing power purchase agreement to lower investment costs associated with planning or operating energy plants.
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Key Drivers and Restraints of Power Purchase Agreement Market
- Long term price security is the major driver of the global power purchase agreement market. Traditionally, the price of electricity has been dependent on the market variability. Power purchase agreement protects consumers from this variability and provides steady power supply with consistent price for an agreed period. The agreement helps companies save up to 25% to 30% on electricity bills. Thus, long term price security is a major factor driving the power purchase agreement market.
- Supportive policies enacted by governments of various countries is another key driver of the power purchase agreement market. Governments across the globe are promoting power purchase agreements by providing tax credits and carbon credit. Led by an increase in environmental awareness, companies are actively entering into power purchase agreements. This is anticipated to drive the global power purchase agreement market during the forecast period.
- Companies do not own the power station system. These systems are owned and installed by developers. This is one of the key restraints of the global market. Companies do not have any control over the power station. As a result, companies sometime hesitate to proceed with power purchase agreement. Hence, lack of ownership of the power plant system is the key restraining factor of the power purchase agreement market.
Global Power Purchase Agreement Market Segmentation
- The global power purchase agreement market can be segmented based on type and location
- In terms of type, the power purchase agreement market can be divided into geothermal, hydropower, solar power, and wind power. Demand for solar power is high in various manufacturing facilities. Hence, the segment is estimated to expand at a rapid pace during the forecast period.
- Based on location, the global power purchase agreement market can be segregated into on-site and off-site. The on-site segment dominated the global power purchase agreement market in 2018. This trend is anticipated to continue during the forecast period.
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Global Power Purchase Agreement Market: Regional Segmentation
- Based on region, the global power purchase agreement market can be classified into North America, Asia Pacific, Europe, Latin America, and Middle East & Africa
- Asia Pacific dominated the global power purchase agreement market in 2018. The market in the region is expected to expand at a significant pace during the forecast period, as demand for renewable power is high in Asia Pacific, particularly in China, India, and Japan.
- North America is projected to account for important share of the power purchase agreement market in the forecast period. The U.S. is estimated capture the leading share of the market in the region in the near future.
- The market in Europe is projected to expand at a significant pace during the forecast period. Government support to maximize the use of renewable sources of energy is a key factor augmenting the power purchase agreement market. Germany is likely to lead the power purchase agreement market in Europe during the forecast period.
- In February 2019,Nike, Inc. signed a power purchase agreement with The Climate Group, wherein the company will get 40 MW of wind power from the 111 MW project being built in Navarra, Spain. After implementation of this project, Nike, Inc. is expected to get 75% of its power supply from the wind energy.
Key Players Operating in Market
- Renewable Energy Systems Ltd
- RECONNECT energy
- Greentech India
- The Royal Dutch Shell PLC
- Enel Spa
- The Climate Group
- GENERAL ELECTRIC
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