European Term | American Term | Definition |
Subsidy | Tax Credits | A subsidy in energy markets is a government financial incentive aimed at promoting renewable energy projects. In the US, subsidies often take the form of tax credits, such as Investment Tax Credit (ITC) – Provides a federal tax credit for the upfront capital investment in renewable energy projects, reducing tax liability based on project cost. Another type of tax credit would be Production Tax Credit (PTC) – Offers a per-kWh incentive for electricity generated by eligible renewable sources (e.g., wind, solar). These subsidies make projects more financially viable by offsetting capital expenditures and reducing investment risks. |
Baseload | Around the Clock (ATC) or 24/7 | Baseload power refers to the minimum level of electricity demand that must be met continuously over 24 hours. ATC PPAs, are PPAs where the seller guarantees a steady 24/7 energy supply, often combining different energy sources to mitigate intermittency. |
Retailer | LSE | LSE = Load serving entities (ERCOT). LSEs (Load Serving Entities) are entities responsible for purchasing electricity and supplying it to end consumers. In the ERCOT market, LSEs manage: |
Grid operator | ISO | A Grid Operator (ISO in the US) is an entity responsible for managing electricity transmission and market operations to ensure grid reliability and efficiency. |
Balancing Operator | QSEs | QSEs = Qualified Scheduling Entities (for ERCOT). A Balancing Operator ensures that electricity supply matches demand at all times. In ERCOT, this function is handled by Qualified Scheduling Entities (QSEs), which are registered market participants that submit schedules for generation/load. They are financially responsible for imbalances between scheduled and actual power output. As well, they are required to forecast energy generation and consumption to avoid penalties in the ERCOT market. |
Profiles | Shapes | Baseload M or Baseload Annual. Profiles refer to the expected power generation pattern of a renewable asset over different time periods (hourly, daily, seasonal). Shapes define the structured delivery of power in PPAs, ensuring consistency in supply, even for variable renewables. |
Merchant | Naked | A long position of power. That is e.g. the production is fully or 100% exposed to fluctuations in prices. A merchant power plant operates without a long-term contract, meaning it sells electricity at market prices instead of a fixed PPA. A "naked" position refers to full exposure to market fluctuations, where price volatility affects revenue unpredictably. The generator takes all market risks, including demand shifts, negative pricing, and congestion costs. As well, hedging is typically used to mitigate extreme risks, but a fully merchant/naked plant remains at the mercy of market prices. |
Balance Responsible Party (BRP) | Load-Serving Entities (LSEs) in ISOs/RTOs | An entity responsible for ensuring that electricity generation or consumption balances in the power system. BRPs submit schedules to the transmission system operator (TSO) and bear financial responsibility for imbalances in market settlements. |
CfD Subsidy Auctions | CfD Subsidy Auctions | Contracts for Difference (CfD) subsidy auctions are a long-term price stabilization mechanism used to support renewable energy projects. In these auctions, projects bid for a fixed strike price, and if wholesale electricity prices fall below this level, the government compensates the difference. However, if market prices rise above the strike price, the project must pay back the excess revenue to the government. CfDs offer predictable revenue streams for renewable developers and are widely used in Europe to promote offshore wind, solar, and other clean energy technologies. In the US, state-level Offshore Wind Renewable Energy Certificates (ORECs) function similarly in some regions. |
Credit Rating Adjustment | Corporate PPA Credit Risk Assessments | A mechanism in PPAs adjusting electricity prices based on the creditworthiness of the offtaker. Buyers with lower credit ratings may face higher contract prices or require additional financial guarantees like letters of credit or bank guarantees. |
Delegated Act (EU Hydrogen PPAs) | Inflation Reduction Act (IRA) Hydrogen Tax Credits | A legal framework under the EU Renewable Energy Directive (RED II) regulating green hydrogen production and certification. It mandates rules on additionality, geographic correlation, and renewable electricity sourcing. |
Direct Agreement | Collateral Assignment Agreement | A project finance agreement granting lenders direct rights over the revenue streams of a PPA in case of project default, ensuring the continuation of contractual obligations under new ownership. |
EIB | EIB | The European Investment Bank (EIB) is the financial institution of the European Union, providing low-interest loans and financing for large-scale infrastructure, clean energy, and climate-related projects. The EIB plays a crucial role in supporting renewable energy development by offering long-term financing solutions that lower capital costs for developers. In the US, the Department of Energy’s Loan Programs Office (LPO) serves a similar function by backing large-scale clean energy projects, while state-level Green Banks provide financing for smaller renewable energy investments. |
European Commission | European Commission | The European Commission is the executive branch of the European Union (EU), responsible for proposing legislation, enforcing EU laws, and directing policy initiatives across various sectors, including energy and climate policy. It plays a key role in shaping renewable energy markets by setting targets for decarbonization, emissions reduction, and energy transition. In the US, the Department of Energy (DOE) oversees federal energy policy, while the Federal Energy Regulatory Commission (FERC) regulates wholesale electricity markets and transmission infrastructure. |
Imbalance risks | Imbalance risks | Compensation to the TSO for the forecast error for intermittent renewable assets (the difference between forecasted volume and forecasted (captured) price vs. actual production and (captured) price). |
Liquidity Premium | Market Price of Risk (MPR) in Energy Hedging | An additional cost in long-term PPA contracts due to the difficulty of exiting or hedging illiquid positions. The premium compensates for limited flexibility in trading or unwinding the contract. |
Market Agreement (Long-Term PPA) | Long-Term PPA (Same in US) or VPPA (if Financial) | A structured agreement allowing renewable energy projects to lock in fixed or indexed electricity prices over multiple years, often including hedging strategies and risk-sharing mechanisms. |
Offshore Wind PPAs | Offshore Wind Renewable Energy Certificates (ORECs) | Long-term PPAs structured for offshore wind projects, often involving government-backed Contracts for Difference (CfDs), transmission risk-sharing, and regulatory compliance requirements. |
Pay-as-Nominated PPA | Dispatchable Renewable PPAs | A PPA structure where the offtaker purchases only the amount of electricity the generator nominates in advance, shifting forecasting risk to the producer. |
Route-to-Market PPA | Sleeved PPAs / Utility-Offtake Agreements | A contract structure that ensures renewable energy generators can sell electricity into wholesale markets through an intermediary, typically a trading firm or utility. |
Subsidy Auctions | Renewable Portfolio Standard (RPS) Auctions or State-Level Clean Energy Procurement Programs | Subsidy auctions are competitive bidding processes where renewable energy developers submit bids to receive financial support for electricity generation. The government or regulatory authority awards subsidies based on the lowest bid per MWh, ensuring cost-efficient deployment of renewable energy. Unlike fixed subsidies, auction-based models allow the market to determine support levels, driving down costs. In the US, similar structures exist under state-mandated Renewable Portfolio Standards (RPS), utility-led clean energy procurements, and Indexed REC auctions in some states. |
Term Sheet PPA | Preliminary PPA Term Agreement | A preliminary, non-binding agreement outlining the key commercial terms of a PPA before final contract negotiation. |
TSO (Transmission System Operator) | Independent System Operator (ISO) / Regional Transmission Organization (RTO) | An entity responsible for managing electricity transmission infrastructure and ensuring grid stability by balancing supply and demand. |
Two Way Subsidy Auctions | Comparable to some state-level Renewable Energy Credit (REC) programs or Indexed REC Auctions | Two-way subsidy auctions are competitive tenders in which renewable energy projects bid for a floating subsidy mechanism that adjusts based on market prices. Under this model, if the market price falls below the awarded strike price, the project receives a subsidy to make up the difference. Conversely, if market prices exceed the strike price, the project must pay back the surplus revenue. This approach ensures stable investment conditions for renewable developers while minimizing excess government spending on subsidies when market prices are high. |
Qualified Scheduling Entity (QSE) | QSE (ERCOT-specific term) | A Qualified Scheduling Entity (QSE) is an entity that schedules and dispatches power generation and load within the ERCOT market in Texas. QSEs act as intermediaries between generators, load-serving entities, and the ERCOT grid operator, ensuring that power schedules align with grid demand. They bear financial responsibility for imbalances and must submit energy bids/offers into the day-ahead and real-time markets. |
Route to Market (RTM) Provider | Power Marketer (US) | A Route to Market (RTM) Provider is an entity that offers generators and renewable energy developers access to wholesale electricity markets by managing trading, balancing, and settlement activities. RTM providers help smaller generators navigate complex market structures and secure optimal prices for their electricity, often providing risk management strategies to hedge against price volatility. |
Load Serving Entity (LSE) | LSE (US) | A Load Serving Entity (LSE) is a utility, retail electricity provider, or cooperative responsible for delivering electricity to end consumers. LSEs procure energy from power markets, independent generators, or PPAs and ensure their customers receive a reliable supply of electricity. In US markets, LSEs participate in capacity auctions, forward contracts, and real-time balancing markets to meet regulatory obligations. |
Scalars | Scalars | Scalars are adjustment factors applied to forecasted electricity generation based on expected deviations due to external influences such as temperature variations, grid constraints, or changes in wind/solar availability. They help refine power output predictions, ensuring more accurate scheduling and reducing imbalance penalties in electricity markets. |
Hybrid PPA (Solar & Storage PPA) | Hybrid PPA (Solar & Storage PPA) | A Hybrid PPA is a power purchase agreement that combines renewable energy generation, such as wind or solar, with a battery energy storage system (BESS). This structure allows greater flexibility in dispatching electricity by storing excess energy during low-price periods and selling it when prices are higher. Hybrid PPAs help mitigate intermittency risks and maximize revenue opportunities for renewable energy projects. |
As-Generated PPA (Pay-as-Produced PPA) | Unit Contingent PPA | An As-Generated PPA, also known as Pay-as-Produced, is a power purchase agreement where the offtaker agrees to purchase all electricity generated by a renewable asset in real-time. Unlike fixed-shape PPAs, the buyer assumes the volume risk, making this structure beneficial for generators but requiring advanced risk management by the offtaker. This is similar to a Unit Contingent PPA in US markets, where deliveries depend on asset performance. |
Shape Risk | Profile Risk | Shape Risk refers to the uncertainty associated with the alignment between a renewable energy asset’s generation profile and electricity market price peaks. For example, solar generation typically peaks in the afternoon, but electricity demand may peak in the evening, causing a mismatch that can reduce revenue. Managing shape risk requires advanced forecasting, storage solutions, or financial hedging strategies. |
Around-the-Clock (ATC) PPA | Around-the-Clock (ATC) PPA | An Around-the-Clock (ATC) PPA is a contract where the power producer guarantees 24/7 electricity delivery by combining renewables with firming resources, such as battery storage, hydro, or gas peakers. ATC PPAs are often used by corporate buyers seeking continuous green energy supply while mitigating the variability of wind and solar generation. They require a diversified asset portfolio to meet obligations at all hours. |
Balancing Cost (Physical Cost) | “Physical Cost” for delivery risk in Real time market | Balancing Cost, also called Physical Cost, represents the financial impact of real-time adjustments made to match electricity generation with demand. When renewable energy forecasts are inaccurate, grid operators impose penalties or require costly balancing actions to maintain stability. Market participants mitigate these costs through accurate forecasting, battery storage, and participation in ancillary services markets. Generators can opt for 15 min real time energy prices (ERCOT); only if they were to sell to day ahead markets they would create “balancing risk”. |
General Definitions
Commonly used terms across the industry.
Updated over 6 months ago