European Term | American Term | Definition |
Annual Baseload PPA | Baseload PPA (Annual is usually implied in long-term deals) | This is a volume/contract structure. In an annual baseload PPA, the buyer agrees to buy a determined volume of energy for every hour over the year. Profile and volume risks sit with the seller, because they have to deliver the agreed energy no matter what. If there’s low production and the seller cannot meet its obligations through its plant, the agreed volume will be sourced from the spot market. To learn more on Baseload PPAs, watch our Renewable Assets Under Baseload PPAs webinar. |
Arbitrage Revenue (Storage) | Price Spread Arbitrage | Profits earned by charging a battery when electricity prices are low and discharging when prices rise. Storage operators in wholesale electricity markets take advantage of price fluctuations, optimizing when to store and release energy to maximize revenue. This strategy is particularly effective in markets with high renewable penetration, where variability in wind and solar generation creates price volatility. |
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. |
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. |
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. |
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”. |
Balancing Market | Real-Time Market | The balancing market is a crucial component of power systems, allowing grid operators to procure energy in real-time to maintain supply-demand equilibrium when actual generation or consumption deviates from forecasts. Generators and demand-side participants submit balancing offers, and the system operator dispatches the lowest-cost resources to correct any imbalances. |
Balancing Mechanism (BM) | Real-Time Dispatch | The Balancing Mechanism is a real-time electricity market operated by grid operators or transmission system operators (TSOs) to ensure that supply and demand remain balanced at all times. Unlike the day-ahead or intraday markets, where participants trade electricity in advance, the Balancing Mechanism allows generators, demand-side providers, and battery storage operators to submit offers to increase or decrease generation (or adjust consumption) in response to real-time fluctuations. |
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. |
Balancing Risk | Imbalance Risk (More common in U.S. markets) | It’s a risk relevant to the intermittent nature of renewable energy. A plant has production commitments not only to the seller but to the system operator as well. On the one hand, if the buyer doesn’t receive the expected production volume, the energy needs to be acquired elsewhere. On the other hand, when the plant deviates from what the grid expects production volume to be, there are imbalance costs for the project charged by the system operator. The magnitude of the imbalance cost is driven by the actual deviations between scheduled production and real production (“forecast error”), the regulatory design of the balancing market (i.e., punitive design with penalties) and finally, whether portfolio effects may exist. The seller usually has a balancing agreement with a third party for a fee as a mitigation tool. |
Bank Guarantee (BG) | Bank Guarantee (BG) | A Bank Guarantee (BG) is a financial security instrument used in energy contracts, PPAs, and project financing to assure payment obligations. It acts as a guarantee from a bank that a party will meet its contractual obligations; if the party defaults, the bank covers the payment. In the US, Letters of Credit (LoC) and Performance Bonds serve similar functions in energy transactions, ensuring financial security for developers, offtakers, and counterparties in renewable energy deals. |
Bankability | Financeability / Investment-Grade PPA | A term used to describe whether a project is attractive to lenders and investors. Bankability is influenced by contract length, counterparty credit rating, revenue certainty, and regulatory stability. High bankability ensures easier access to tax equity financing and project loans. |
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. |
Basis Risk = Residual Risk | Basis Risk = Hub/Node | Residual Basis Risk refers to the financial exposure resulting from price differences between nodal prices (where electricity is injected into the grid) and hub prices (used for settlement in financial PPAs). This discrepancy can lead to unpredictable cash flows for renewable generators and offtakers. Managing residual basis risk requires hedging strategies. |
Buyer | Market Participant / Load Serving Entity (LSE) | The entity that is purchasing power from a renewables generator. It could be a corporate, a trader or a utility. Also known as off-taker, consumer or purchaser. |
Cannibalization Risk | Covariance Risk | The risk of falling renewables revenues due to reduced price following high market growth of renewables assets. When large volumes of solar PV are produced simultaneously, the capture price in the system during their production time will decrease as other, more expensive technologies will not be needed to produce electricity and therefore not set the price in the market. |
Capacity Market | Resource Adequacy Market | A capacity market is designed to ensure long-term grid reliability by compensating power plants for their availability to generate electricity when needed, even if they are not actively producing power at all times. Unlike energy markets, where payments are made for actual electricity delivered, capacity markets provide financial incentives for generators to remain operational and ready to dispatch power during peak demand periods. Generators participate in competitive auctions, bidding to provide firm capacity in megawatts, with the grid operator selecting the most cost-efficient providers to maintain system stability. Payments are then made for this guaranteed availability, regardless of actual energy production. |
Cap-and-Floor PPA | Collar PPA | A hybrid pricing structure where the seller is guaranteed a minimum price (floor) while the offtaker pays no more than a maximum price (cap). If market prices fall below the floor, the offtaker compensates the seller; if prices exceed the cap, the seller compensates the offtaker. This structure balances revenue security for sellers and cost control for buyers. |
Capture Factor | Capture Price Index | Capture factors represent the ratio of captured price over baseload price. For solar, typically capture factors are around 1 in winter and slightly lower in summer when most of the production occurs. For wind, they tend to be lower in winter, where production predominantly occurs. Capture factors illustrate the ratio of the average volume weighted price to the baseload price of a given tenor (captured price/baseload price). They indicate how much above or below the baseload price the price captured by an asset is expected to be. |
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. |
Co-location | Hybrid Assets | The practice of locating multiple energy assets at the same site, such as solar and battery storage or wind and battery to optimize energy use and market access. By co-locating assets, grid connection costs are reduced and direct storage charging from generation is enabled. |
Commercial Operation Date (COD) | COD (Same, widely used in the U.S.) | The acronym stands for Commercial Operation Date. It’s an important date for PPAs, because it marks when the project can start selling its output. |
Contracted Volumes | Contracted Energy / Contracted Load | Renewable production volumes that are committed for delivery within a PPA agreement. Depending on a buyer’s needs, they may want to contract the entire volume (100%) or part of it (i.e., 50%). |
Contracts for Difference (CfD) | Hedging Contract | In a CfD, two parties enter an agreement to trade a financial instrument. In the renewables world, such financial instrument is electricity. CfD mechanisms have been widely used as a government support mechanism, where projects participate in an auction and bid for a strike price. Under a CfD mechanism, the project sells its energy to the wholesale spot markets. Depending on the movement of spot prices, there are cashflow exchanges between the generator and the second party, which is usually a government entity. If the market price that the generator sells its energy at, also known as reference price, is above the strike price agreed, then the generator will pay back the difference. If the reference price is below the strike price, then the buyer will pay back the difference. Besides acting as a government subsidy instrument for renewables (used in the UK, Poland etc), a CfD can be agreed in bilateral PPAs, notably in Virtual PPAs. |
Corporate | Corporate Offtaker / Corporate Buyer | A non-utility, non-trader consumer of electricity. Industrials are often referred to as corporates, but the difference is that industrials’ energy needs are significant, and energy costs are directly linked to the cost of production. |
Counterparty Credit Risk | Default Risk / Creditworthiness Risk | The risk that the buyer (offtaker) or seller fails to fulfill financial obligations. A parent company guarantee (PCG) or a letter of credit (LoC) is often required to mitigate this risk. In corporate PPAs, credit ratings and financial health are key factors in securing financing. |
Counterparty Risk | Counterparty Risk | This is the risk of default that each party to a contract assigns to the other party (Counter party). The level of risk assigned to a Counter Party is typically influenced by its preceived finanacial stability and crediworthniess. A company with a perceived high leve of risk is generally required to provide some form of payment gaurantee or bond. |
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. |
Cross-Border PPA | Interstate PPA (since U.S. states act as separate power markets) | This is a long-term contract for the purchase of electricity where the power is generated in one country and consumed in another. This arrangement enables buyers to procure renewable energy from assets located in a different electricity market, often taking advantage of better renewable resources, lower costs, or regulatory incentives in the country of origin. |
Curtailment | Curtailment | Curtailment refers to the intentional reduction or shutdown of electricity generation due to grid constraints, oversupply, or system stability requirements. In all cases except economic curtailment the Independent System Operator instructs the generator to curtail its production of electricity. It affects renewable energy sources, such as wind and solar, which generate power based on weather conditions rather than demand. |
Curtailment Risk | Curtailment Risk | Curtailment risk refers to the forced reduction or complete shutdown of a renewable energy asset's electricity production due to grid congestion, oversupply, or market conditions. When the electricity supply exceeds demand and grid capacity is limited, system operators may instruct generators to reduce output to maintain grid stability. This risk is particularly high in regions with high renewable penetration and inflexible grid infrastructure. |
Day-Ahead Market (DAM) | Day-Ahead Market (DAM) | The day-ahead market (DAM) is a forward electricity trading market where participants buy and sell energy for delivery on the following day. By securing fixed prices based on projected supply and demand conditions, the DAM allows market participants to hedge against short-term price volatility and optimize their scheduling. Prices in this market are determined through an auction process, with energy traded at hourly intervals. The DAM plays a vital role in providing price stability and liquidity, particularly for generators who prefer to secure sales in advance rather than be exposed to real-time market fluctuations. Buyers also use the DAM to lock in electricity prices, reducing exposure to unpredictable price swings in the real-time market. |
Degradation | Performance Degradation (Same) | It refers to the rate at which photovoltaic panels degrade over time. For instance, a producer might estimate production volumes with a degradation assumption of 2% per annum, which means that every year the solar panels output 2% less electricity than the year before. |
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. |
Delivery Start | Commercial Start Date | The agreed start date when power delivery begins under a PPA or wholesale market contract. This is typically defined in the PPA contract as part of the Commercial Operation Date (COD). |
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. |
Dispatchability | Load-Following Ability | The extent to which an asset’s generation can be adjusted to meet electricity demand. Unlike fossil fuel plants, solar and wind are non-dispatchable, meaning they generate power based on weather conditions. Battery storage and hybrid PPAs help increase dispatchability. |
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. |
Electrolyser | Electrolyser | A device that uses electricity to split water into hydrogen and oxygen, producing green hydrogen when powered by renewable energy. Electrolysers play a key role in clean hydrogen production, supporting decarbonization across transportation, industry, and energy storage. |
Energy Yield Assessment | Production Forecasting | It’s the technical assessment of the expected annual energy yield of a planned power plant. It’s carried out by an engineering firm and plays a crucial role in the volume a plant can commit to selling. |
ESG Factors | Sustainability Metrics or Corporate Sustainability Reporting | The acronym stands for environmental, social and governance. ESG are non-financial factors to identify a company's sustainability and societal impact. In recent decades in financial markets, special attention has been given to companies with an ESG focus, for instance funds that invest in carbon-neutral companies. In Fixed Income markets, some special bonds (called ‘green bonds’) were issued specifically to finance green projects. Financial data vendors have also developed benchmarks and indicators to track the ESG performance of individual companies. |
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. |
European Network of Transmission System Operators for Electricity (ENTSO-E) | European Network of Transmission System Operators for Electricity (ENTSO-E) | This is an institution which coordinates grid operations across Europe, ensuring electricity transmission reliability across borders. |
Federal Energy Regulatory Commission (FERC) | Federal Energy Regulatory Commission (FERC) | FERC is an independent U.S. federal agency responsible for regulating interstate electricity transmission, wholesale electricity markets, natural gas pipelines, and hydroelectric projects. |
Feed-in Tariffs (FiTs) | Production Tax Credits (PTC) or Renewable Energy Credits (RECs) | FiTs are subsidy schemes whereby a fixed amount, independent of the wholesale market price, is paid for the electricity produced from renewable energy sources and fed into the grid at any time. FITs are long-term contracts awarded to renewable energy producers as a way to encourage the buildout of renewable energy installations. In mature markets, FiTs – which operated on a first come first serve basis – have been replaced with competitive auction schemes. |
Fixed Hourly Profile | Shaped PPA (or sometimes "Fixed Shape PPA") | Refers to a contractual arrangement where a fixed quantity of energy is delivered or settled for each hour of the day, independent of actual production from the renewable asset. This profile is typically agreed upon in advance between the seller and the buyer. |
Floating Price PPA | Market-Price PPA | Instead of locking in a fixed price, the seller is paid based on a spot market or an agreed-upon index. This structure benefits sellers when market prices rise but introduces revenue uncertainty. These contracts are often used when renewable developers seek to capture merchant pricing upside. |
Floor with Revenue Sharing (Storage Offtake Contract) | Minimum Guarantee with Upside Sharing | A contractual structure where a storage operator receives a guaranteed minimum payment (floor price) while sharing additional profits with the buyer. This balances risk and reward, ensuring stable revenues while allowing participation in market gains. |
Force Majeure Clause | Act of God Clause | A contract provision that relieves both parties from performance obligations due to unforeseen, extraordinary events (e.g., natural disasters, war, government intervention). These clauses are particularly important in renewable PPAs, where weather events like hurricanes or wildfires could impact generation. |
Forecast Inaccuracy | Forecast Inaccuracy | The difference between forecasted, often on a day-ahead basis, and actual realised production of a plant. |
Forward Curve | Forward Curve | A curve to represent the value of power, when the power is transacted today for delivery in the future. |
GoO or GO | Renewable Energy Certificates (RECs) | Guarantees of Origin are an instrument defined in European legislation that labels electricity from renewable sources to provide information to electricity customers on their energy source. In many cases, GoOs are used as property rights to transfer the “green benefit“ of renewable electricity production from the seller to the buyer. |
Grid Charging | Grid Charging | The process of charging a battery storage system (BESS) using power from the grid, rather than from a co-located renewable asset. |
Grid Congestion Risk | Transmission Curtailment Risk | The risk that electricity cannot be delivered due to transmission system constraints, leading to lower revenues. This is a growing issue in high-renewable penetration areas where grid upgrades lag behind capacity additions. Curtailment provisions in PPAs help determine compensation when congestion affects project economics. |
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. |
Hedge Ratio | Hedge Coverage Ratio or Hedge Effectiveness | In the energy trading lingo, it’s the percentage of a hedged position with respect to the open position. In simple words, it shows how exposed one is to energy risks. In a PPA, it’s common for a producer to hedge 70% of the production. In trading lingo, it’s the comparative value of an open position’s hedge to the overall position. |
Hedging | Hedging | In energy sales, hedging is a process to reduce price risk, as in protecting against price uncertainty, by taking an offsetting position of approximately the same size but opposite price direction. Hedging can be done by using standard products traded on an exchange or over-the-counter to transfer price risk to other market participants. Analogous transfer of risks can occur through a PPA or any other bilateral agreement. The hedged position is the volume not exposed to price risk. |
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. |
Hybridisation | Hybridisation | The combination of different energy sources or technologies (e.g., solar + storage or wind + storage) to optimize energy output and flexibility. Hybrid systems improve capacity utilization, mitigate intermittency issues, and can provide more stable revenue streams. |
Imbalance costs | Deviation Charges or Real-Time Settlement Costs | Costs incurred when energy generation or consumption deviates from scheduled commitments, requiring balancing market adjustments. These charges ensure grid stability by incentivizing accurate forecasting and flexible generation or storage solutions. |
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). |
Indexed PPA | Market-Linked PPA | A contract where the price is tied to an external benchmark, such as wholesale electricity prices, fuel costs, or inflation. This structure helps offtakers hedge against long-term market fluctuations while giving sellers exposure to potential price increases. It contrasts with a fixed-price PPA, where the price remains constant throughout the contract. |
Intraday Market (IDM) | Real-Time Market (RTM) | The intraday market (IDM) enables electricity trading within the same day, allowing market participants to adjust their positions closer to the actual delivery time. This market is essential for managing forecasting errors, responding to unexpected demand fluctuations, and integrating variable renewable generation more effectively. Wind and solar generators frequently use the IDM to fine-tune their energy deliveries as more accurate weather forecasts become available. Additionally, battery storage operators leverage the IDM for short-term arbitrage, capitalizing on rapid price movements by charging and discharging based on real-time market conditions. |
Legal Risk | Regulatory & Contractual Risk | PPA contracts are complex. Commercial risks, Force Majeure, Change of Control, Termination, and Conditions Precedent are amongst key clauses that need to be negotiated. This is the risk of a change in the law that affects the balance of revenue or risk between the parties, for example, tax change. |
Letter of Credit (LoC) | Letter of Credit (LoC) | Another form of credit support. This is a financial guarantee issued by a bank or financial institution that ensures a buyer's payment to a seller will be made on time and for the correct amount. If the buyer fails to fulfill their payment obligations, the issuing bank covers the outstanding amount, providing security to the seller. LoCs are widely used in international trade, large-scale contracts, and energy markets to mitigate credit risk between counterparties. |
Levelised Cost of Electricity (LCOE) | Levelised Cost of Electricity (LCOE) | Levelized cost of energy (LCOE) is the average net present cost of electricity for a generating plant over its lifetime. It’s used as a comparative cost value for different energy technologies, and their investment attractiveness. Find out how LCOE can impact the price of your PPA by reading our What Should You Consider When Pricing a PPA? report. |
Liquidity | Liquidity | A core concept in financial trading, which includes trading of energy. The market price is made up of bids and offers for certain levels of volume arranged in a stack. If there are not enough offers on the market, one may not be able to transact at the desired price or at all. Liquidity is fostered by the market, the number of market participants, their risk appetite and market regulation. Ideally, the market has enough liquidity, so that electricity or natural gas can be sold and bought with reasonable transaction costs, and without small trade volumes impacting the price of the commodities. |
Liquidity Cost | Liquidity Cost | A cost deducted from the forward curve to account for the risk that a product cannot be traded quickly enough in the market without an intervening price change. It is determined by the bid/ask spread and market volume information. |
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. |
Liquidity Shortfall | Market Liquidity Constraint | The risk that the non-contracted volume has a negative value which may occur due to un-favourable weather conditions (causing volume shortfall) and/or due to un-favourable spot price distributions. |
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. |
Locational Marginal Price (LMP) | Locational Marginal Price (LMP) | Locational Marginal Price (LMP) is the real-time electricity price at a specific location on the grid, determined by a combination of generation costs, transmission congestion, and grid losses. Higher LMPs indicate grid congestion or supply constraints, while lower LMPs reflect excess generation or low demand. For PPA participants, exposure to LMPs introduces basis risk, as the contracted PPA price may differ from the prevailing LMP at the delivery point, leading to potential revenue fluctuations. Energy storage providers, particularly batteries, take advantage of LMP volatility by charging when prices are low and discharging when prices are high, engaging in arbitrage to maximize financial returns. |
Long Position | Long Position | When a market participant owns more electricity or energy contracts than they are obligated to deliver. They have an excess of energy they can sell in the market. |
Mark to Market (MtM) | Mark to Market (MtM) | Mtm is a financial accounting method that values a companies assets and liabilities base on current market conditions. It provides a realistic assessment of a company's financial position by establishing a fair value for all of its positions that are subject to market fluctuations. US energy trading organizations use the method to determine their financial situation, profit/loss. |
Mark to Market (MtM) | Mark to Market (MtM) | When a renewable energy plant is exposed to normalised power markets with no publicly guaranteed long-term renumeration. The term ‘merchant’ is also referred to as subsidy-free renewables. A merchant plant would receive the fluctuating daily spot market price, instead of a fixed-one. Merchant plants reduce merchant exposure through hedging instruments, such as PPAs. |
Market Access Agreement (Optimizer Agreement) | Market Access Agreement (Optimizer Agreement) | A Market Access Agreement, also called an Optimizer Agreement, is a contract where a third-party service provider manages the dispatch and revenue optimization of a renewable or storage asset. The provider ensures market access, scheduling, and compliance while sharing profits or guaranteeing minimum revenue levels for the asset owner. |
Market Access PPA (Route to Market PPA) | Wholesale Market Access PPA or Direct Access PPA | A market access contract, also known as direct marketing, is for the sale of electricity at market prices. It’s provided by utilities or traders for generators. It covers services such as forecasting production, imbalance management and trading to wholesale markets. A market access PPA does not provide fixed revenue to generators. |
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. |
Market Exposure | Market Exposure | When a power plant is merchant, it is exposed to the volatility of wholesale electricity markets. It’s exposure, also known as merchant exposure, depends on how much volume it has contracted under fixed-price instruments. If a generator expects an annual output of 10GWhm and has contracted 6GWh through a corporate PPA, its exposure is 4GWh. Exposure is also known as revenue risk. |
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. |
Monte Carlo Simulation | Monte Carlo Simulation | Monte Carlo Simulation is a mathematical technique using the generation of random numbers for modelling risk or uncertainty of a given system, including energy. The random variables are modelled according to appropriate probability distributions and used to simulate a large number of scenarios. Variables of interest (e.g., revenues of a given contract) can be evaluated on each scenario and collectively these evaluations provide a probability distribution of the considered variable of interest. In energy, it is used as a key risk methodology for energy sales and hedging decisions. |
Monthly Baseload PPA | Monthly Block PPA (More common in ISO/RTO trading) | In this commercial structure, the buyer agrees to pay a pre-agreed amount of electricity for every hour of each month. This way, the seller is taking into consideration the seasonal variability of production. The difference between the produced volume and the contracted volume is settled at the spot market. |
Monthly Profile Cost/Gain | Shape Hedge Cost/Gain | It’s the difference between the value of a monthly profile (volume-weighted average of monthly prices) and an annual baseload profile (flat average of the prices). Whether the difference is a cost or a gain depends on the correlation between the monthly volumes and the monthly prices. |
Negative Prices | Negative Prices | Negative electricity prices occur when power supply exceeds demand, forcing generators to pay buyers to take excess electricity. This phenomenon is most common in markets with high renewable energy penetration (such as wind and solar) and limited flexibility in demand or storage. |
Negative Pricing Risk | Negative Pricing Risk | Negative pricing risk occurs when electricity market prices drop below zero, meaning generators must pay to inject power into the grid. This typically happens when high renewable energy production coincides with low demand and limited grid flexibility, leading to oversupply and market imbalances. Negative prices force renewable projects—especially those with fixed-price PPAs or subsidy structures—to either reduce generation or incur financial losses. In the US, negative pricing events frequently occur in ERCOT (Texas), CAISO (California), and SPP (Southwest Power Pool) due to high wind and solar penetration combined with transmission bottlenecks. |
Nodal Price Risk | Locational Marginal Price (LMP) Risk | The risk that electricity prices at the project's node (local price point) differ significantly from regional hub prices. In US nodal markets (e.g., ERCOT, PJM, CAISO), prices vary by location based on grid congestion and losses. Nodal risk is particularly relevant for merchant renewables and VPPA contracts. |
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. |
Offtaker | Buyer / Power Purchaser | In a PPA deal, it’s the party that buys the energy, also known as the buyer. It’s the purchaser who buys power from a project developer without taking ownership of the plant. |
Parent Company Guarantee (PCG) | Parent Company Guarantee (PCG) | A parent company guarantee (PCG) is a form of credit support to shield the counterparty from losses from failure to perform contractual obligations. It can be provided to any party of the contract. If the offtaker has a low credit rating – or no credit rating at all – the investment-grade parent company may need to act as guarantor. Lenders usually make it a requirement for a loan agreement. Likewise, an offtaker may ask for such a guarantee from a project developer to mitigate the risks of a project not moving forward after signing the PPA. Other examples of credit risk mitigation tools include bank guarantees or the provision of cash into an escrow account. |
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. |
Pay-as-Produced (PAP) | As-Generated PPA or Unit Contingent PPA | PAP is the most widely known volume structure. In this structure, the offtaker buys any volume produced from the asset at any time. It is similar to a prototypical feed-in-tariff. |
Peak Load PPA | Peak Shaped PPA or Block Peak PPA | This is one of the many PPA volume/contract structures, although not a common one It represents a structure where the agreement is around the peak hours of consumption from Monday to Friday. All-day is typically from 8am to 8pm. So, the buyer only commits to buying energy for their consumption during these hours. There are different blocks to pick from, such as off-peak – i.e., purchase power for night load only. |
Peak Shaving | Peak Shaving | This refers to the use of energy storage or flexible generation to provide incremental electricity to the grid during peak hours when prices and demand are highest. By storing excess renewable energy, such as solar or wind, during low-demand periods and discharging it when demand spikes, peak shaving helps lower electricity costs, optimize renewable energy usage, and reduce reliance on fossil-fuel-based peaker plants. This strategy enhances grid stability, minimizes curtailment, and supports decarbonization by shifting renewable generation to periods of higher demand. |
Physical PPA | Physical Delivery PPA | A physical PPA contract, also known as sleeved PPA, is a contractual agreement where the asset and the offtaker are in the same grid network. This means that there is a physical transfer of the energy – contrary to a virtual PPA. A third party such as a utility is appointed to manage the electricity delivery on behalf of the project. This implies that the physical aspects, such as balancing , need to be included in the contract. |
PPA | PPA | A power purchase agreement (PPA) is a contractual agreement between energy buyers and sellers. They come together and agree to buy and sell an amount of energy which is or will be generated by a renewable asset. The PPA regulates the conditions and duration of the sale. Although PPAs for conventional generation have existed for a long time, the advent of the trend in the renewables sector is less than 10-years .It was started by corporates wanting to green their credentials by procuring green electricity straight from a renewable energy plant. PPAs vary structurally in terms of the volume structure that is delivered and how the pricing works. For more information on the fundamentals of a PPA read our What is a PPA guide. |
Price Risk | Market Price Volatility Risk | In the PPA world, price risk is the uncertainty of not knowing what price you will get for the energy you produce. If you are an offtaker, it’s the uncertainty of not knowing at what price you will buy energy. The uncertainty (e.g., probability of loss) stems from the high volatility in the wholesale market prices. Price risk is unavoidable but can be mitigated through hedging instruments, such as a PPA or a futures contract that will fix your price. |
Price Zone | Nodal Pricing Zone (Used in U.S. markets like PJM, CAISO, ERCOT) | Some countries are divided into separate pricing/bidding areas. Pricing is defined by local supply and demand, and interconnection. A prime example is the Nordic energy market. The physical production is always renumerated in the local area price as quoted and realised on Nord Pool Spot. Nasdaq exchange created the Electricity Price Area Differentials (EPAD) as hedging product allowing members on the exchange to hedge against this area price risk. Another country with different market zones is Italy. |
Profile Risk | Shape Risk | Profile risk arises from the fluctuating nature of renewable energy (for example, no solar energy is produced at night). In markets with high renewable energy penetration, times of high production can mean a significant decrease in power price, that is, revenue. This will depend on the location and type of the plant (solar or wind). You can mitigate this risk by choosing certain PPA structures. Electricity prices are usually quoted for standard products (i.e., the delivery of 5MW during Calendar Year 2022) that are based on 24/7 baseload deliveries of electricity. One speaks of “profile risk” of a generating asset such as a wind farm, if the hourly production profile of such an asset deviates from the baseload characteristic and corresponding hourly prices lead to an overall lower value (or higher, as the case may be) in aggregate. The magnitude of the profile risk is driven by the actual profile of the generating asset, the correlation between the generating asset’s forecast error and market prices and the structure of the overall generation market. In markets with high penetration of renewable energy, there is generally a negative correlation between times with lots of wind and/or radiation and market prices. This is often referred to as “cannibalization” effect and forms part of the profile cost. Profile risk can only be hedged through “fixed price” products where a utility is willing to pay a fixed price (usually at discount to the baseload price) for the entirety or parts of the volume produced by the wind farm during at any time. Profile risk captures short-term variations of production, even if the annual production is in line with forecasted volumes. |
Profile Shifting | Load Shifting | The practice of adjusting the timing of energy consumption or storage discharge to match favorable market conditions. Load shifting helps optimize renewable energy use, reduce peak demand, and improve overall energy efficiency. Storage assets often shift energy from low-price to high-price periods. |
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. |
Proxy Revenue Swap (PRS) | Weather Hedge PPA | A financial hedge designed for renewable energy projects where payouts are based on modeled revenue rather than actual energy delivery. These agreements help mitigate weather-related risk by using long-term wind or solar data to determine expected revenues. A third-party insurer or financial institution typically structures the swap. |
P-Values (e.g., P50/P90/P10) | P-Values (e.g., P50/P90/P10) | Percentiles are a universal statistical concept used to identify the percentage of scores that falls under a specific value. In the PPA world, an example of where such probability figures are commonly used is to calculate an asset’s production volume, and therefore the revenues from the sales. Before the investment decision, an investor needs to ensure the plant’s profitability based on its output, before moving to follow-up assessment of how other risks influence the plant’s revenues. During the energy yield assessment, there’s a forecasted annual production. The P50 figure represents a 50% chance for the actual output to exceed the forecasted production. The P90 figure represents the volume that it’s 90% probable to be the actual production. Typically, the P90 figure is the smallest one, as it’s the more conservative one. Lenders commonly use it to be on the safe side. P-Values are used in a plethora of distribution assessments, such as revenue, price, cost savings and other. |
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. |
Regulatory Risk | Policy Risk | It’s a risk stemming from regulatory changes impacting a business model. For renewables assets, a regulatory change can take many forms such as instances of regulator making generators liable for all transmission losses or retroactively cutting down pre-agreed feed-in tariffs. |
Replacement Cost | Replacement Energy Cost | The cost of a seller having to replace the PPA’s fixed price in case the counterparty defaults on its obligations or goes bankrupt. In this occasion, it needs to be sorted which portion can be recovered given market prices in force at the time of this default. Whether prices are lower or higher will define the size of the loss. Typically, mitigation tools are guarantee instruments, such as PCG or Bank Guarantees. |
Repricing Risk | Reopener Risk | The risk that a contract price needs to be renegotiated due to regulatory changes, index adjustments, or market shifts. This is common in long-term PPAs where market conditions evolve significantly over time. Some contracts include price reopeners, allowing both parties to adjust terms under predefined conditions. |
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: |
Revenue Distribution Curve | Revenue Probability Curve | It’s the curve representing simulated revenues based on the outcome of the set of scenarios considering volume, price and profile factors deviations. The narrower the curve the more certain is a revenue outcome as the range of outcomes is smaller. The higher the curve, the more scenarios resulted in this specific revenue outcome. |
Revenue Floor Agreement | Revenue Put Option | A Revenue Floor Agreement is a financial contract that guarantees a minimum revenue level for a battery energy storage system (BESS) owner. If market revenues fall below the agreed floor, the counterparty (often an energy trader or utility) compensates the owner. In return, the owner may share upside revenue potential, making this structure similar to a Revenue Put Option in US markets. |
Revenue Sharing (Storage Offtake Contract) | Revenue Sharing (Storage Offtake Contract) | A contract where a storage operator and offtaker share revenue generated from market participation (e.g., energy arbitrage, ancillary services). The revenue split is typically pre-agreed to align incentives between both parties. |
Revenue Stacking | Revenue Stacking | The strategy of maximizing revenue by participating in multiple energy markets and services, such as capacity markets, ancillary services, and arbitrage. Revenue stacking improves project economics and reduces reliance on a single revenue stream, increasing financial viability for energy storage assets. |
Risk | Risk | Refers to the uncertainties and potential financial, operational, or regulatory challenges that could impact the value, profitability, or effectiveness of the contract for either the seller or the buyer. |
Round-Trip Efficiency (RTE) | Charge/Discharge Efficiency | A measure of how much energy is retained after a full charge-discharge cycle. Batteries typically have RTEs of 85-95%, meaning some energy is lost during conversion. Higher efficiency translates to better economic returns. |
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. |
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. |
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. |
Seller | Generator / Market Seller | The legal entity responsible for the sale of the energy produced by a renewables project. It is often a special purpose vehicle (SPV). It would be the generator, or a utility because the latter acts both as a buyer and a seller in the PPA sphere. Sellers are also called generators, producers and suppliers. |
Settlement Location | Delivery Point | In a financial PPA, or in a CfD, the settlement location (also known as node or trading hub in trading lingo) is where the electricity is sold to the wholesale market. In a cross-border PPA, consumption and production are in different countries. Where the energy will be settled (sold) is an important consideration. |
Settlement Risk | Clearing Risk | It’s the risk of a party not receiving the money for its delivered energy, also known as invoicing risk. |
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. |
Shape Risk | Profile Risk | The risk that a renewable asset generates power at times when market prices are lower than expected. This occurs because solar and wind output do not always align with peak demand periods. Energy storage or hybrid PPAs can help mitigate shape risk. |
Short Position | Short Position | When a market participant has a deficit of electricity contracts or has committed to selling more power than they own. This means they must buy electricity from the market to cover their obligations. |
Short Term Paying Leg | Fixed Price Window | A contractual provision in a Power Purchase Agreement (PPA) where the offtaker agrees to pay a fixed or predefined price for electricity over a short period within a longer-term agreement. This structure provides initial revenue certainty to the seller, often during the early years of a project, before transitioning to a floating or market-based price. It can also serve as a hedge for the offtaker against short-term price fluctuations. Short-term paying legs are commonly used to de-risk investments, attract financing, or align with regulatory incentives. |
Spot Market | Real-Time & Day-Ahead Market (Used in ISO/RTO power trading) | In power markets refers to a short-term electricity trading platform where electricity is bought and sold for immediate or near-term delivery. Prices in the spot market fluctuate based on real-time supply and demand dynamics, grid conditions, and market fundamentals. |
Stack-and-Roll | Rolling Hedging Strategy | A very common energy trading term. It’s a hedging strategy where the total exposure of a trader is stacked (e.g summed together) and hedged with futures (short-end instruments). Because there are typically no long-term electricity contracts to hedge with, the entire exposure is stacked, hedged and when short-term contracts expire they are rolled over into new contracts on the remaining exposure. Execution of a stack-and-roll strategy entails both extra cost and risk. Rollovers require crossing the bid-ask spread, resulting in a cost, whereas residual price risk of the stack-and-roll strategy (out of contango/backwardation changes) is charged for by market participants. In a PPA, the offtaker assumes this risk, charging it to the seller via a price discount. The sum of rollover cost and risk discount is termed Liquidity Premium at Pexapark. |
Stand-alone battery/BESS | Stand-alone battery/BESS | A battery energy storage system (BESS) that operates independently of generation assets. It provides grid services such as frequency regulation, arbitrage, and peak shaving without being directly paired with renewable energy sources. Stand-alone batteries help balance supply and demand, enhancing grid reliability. |
State of Charge (SoC) | Battery Charge Level | The percentage of energy stored in a battery at a given moment. SoC fluctuates based on market signals in arbitrage-based battery storage systems, where power is stored when prices are low and sold when prices are high. |
Step-Down/Step-Up PPA | Graduated Price PPA | The contract price changes at predetermined intervals, either increasing (step-up) or decreasing (step-down) over time. This structure can be used to match expected cost curves, project financing needs, or regulatory incentives. Step-up pricing is sometimes used when early capital recovery is needed, while step-down pricing may be used for projects benefiting from production tax credits (PTCs). |
Storage Duration | Discharge Duration | The number of hours a battery storage system can discharge at full power before being depleted. A key metric in energy storage planning for grid stability. |
Storage Power Ratio | Storage Power Ratio | The ratio of storage capacity (MW) to the power generation capacity (MW) of the plant. This ratio helps determine the flexibility and energy dispatch potential of a storage system. |
Strike Price | Strike Price | The strike price is a key element in financial PPAs and Contracts for Difference (CfDs), representing the agreed fixed price at which the seller and buyer settle power sales. It provides financial stability by ensuring that if market prices fall below the strike price, the buyer compensates the seller, and if market prices rise above it, the seller reimburses the buyer for the difference. For example, if a CfD has a strike price of €50/MWh and the market price is €40/MWh, the buyer pays the seller €10/MWh to cover the shortfall. Conversely, if the market price rises to €60/MWh, the seller returns the €10/MWh excess to the buyer. This mechanism provides price certainty, reducing exposure to market volatility, and is commonly used in government-backed renewable energy auctions, such as the UK’s CfD scheme. |
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. |
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. |
Swaps (Storage Offtake Contract) | Swaps (Storage Offtake Contract) | A financial agreement where energy storage operators lock in future revenue by swapping floating electricity market prices for fixed payments. This mitigates exposure to market volatility and provides financial predictability for storage operators and buyers. |
System Price | Locational Marginal Price (LMP) (Used in U.S. ISOs/RTOs) | Electricity system prices is the spot market price at the end of each settlement period. Calculation methods differ between countries, but they usually depend on supply, demand, imbalance costs and other defining parameters. When forward prices are discussed, typically one refers to system prices. System price forwards are an imperfect hedge for a renewable producer as the underlying production is remunerated in local area prices. |
Take-or-Pay Clause | Minimum Take Obligation | A provision requiring the offtaker to pay for a minimum volume of electricity, whether or not they consume it. This guarantees revenue certainty for the seller but may lead to overpayments for the buyer if demand fluctuates. Some PPAs allow volume flexibility clauses to mitigate this risk. |
Tenor | Contract Duration | The duration of the PPA contract, from its start to the end date. It’s also known as the delivery period. |
Term Sheet PPA | Preliminary PPA Term Agreement | A preliminary, non-binding agreement outlining the key commercial terms of a PPA before final contract negotiation. |
Tolling Agreement (BESS Tolling Agreement) | Tolling Agreement (BESS Tolling Agreement) | A contractual arrangement where a buyer (often a utility, trader, or corporate entity) pays a fixed fee to use a battery energy storage system (BESS) without owning the asset. The buyer provides the electricity for charging, retains the rights to discharge and sell stored energy, and benefits from revenue streams such as arbitrage and ancillary services. This structure allows storage asset owners to secure stable income while enabling buyers to optimize energy trading strategies without investing in battery infrastructure. |
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. |
Vintage (GoOs) | REC Vintage | The year of issuance of a renewable energy certificate (REC), such as a Guarantee of Origin (GoO) in Europe. Determines whether a certificate is eligible for compliance in a given year. |
Virtual PPA/Financial PPA | Contract for Differences (CFD) (More common in U.S. context) | That’s another common term used for a Virtual PPA. It is treated as a financial instrument, often based on the International Swaps and Derivatives Association (ISDA) contract. The agreement doesn’t deal with the physical electricity delivery of electricity but typically includes the Guarantees of Origin. It’s a common structure in the US, but not very advanced in Europe as it is considered a derivative and has a different accounting treatment under the International Financial Reporting Standards (IFRS) than a physical PPA. |
Volume Risk | Generation Risk or Forecasting Risk | Renewables’ production volume is driven by external factors such as wind speed and solar irradiation, which are subject to fluctuation. This introduces uncertainty to the likelihood of achieving expected volumes and meeting contractual obligations. The annual energy production of a renewable asset is an estimate and the uncertainty around it is typically calculated and assessed on basis of long-term meteorological data. Volume risk illustrates the long-term variations between expected and actual production, contrary to profile risk. |
Zero-priced hours | Zero-priced hours | Hours when electricity market prices are close to or below zero due to high renewable generation and low demand. These periods incentivize flexible demand and energy storage solutions, as stored energy can later be discharged when prices recover. |
All Definitions
Updated over 6 months ago