Business Models for Renewables: Energy Arbitrage, Hybrid Power Plants and PPAs

Industry News – May 16, 2024 | Sarah Hommel de Mendonça

Power plants with large-scale storage systems offer a variety of marketing forms. In what is known as energy arbitrage, operators generate revenue by trading electricity on the energy exchange. By storing and trading electricity, price differences at the energy exchange are used to make a profit.

As the large-scale power plants of the future, hybrid power plants are particularly well suited for versatile marketing forms, because the electricity is produced at low cost using the sun or wind (or both combined, which is advantageous due to the complementary production times and cost savings), and the associated large-scale storage system allows it to be made available and marketed at the energy exchange.

The electricity is stored when the price is low, a lot of renewable electricity is being produced, the grid may be overloaded or systems are at risk of being curtailed. When it is profitable to sell the stored electricity, it is fed into the grid.

Power purchase agreements (PPAs) – typically individually negotiated, long-term electricity supply contracts – are another flexible and market-oriented business model for renewable sources of energy. By creating a direct relationship between the producer and the buyer, PPAs ensure that power generation and consumption are optimally matched.

During the energy crisis triggered by the conflict in Ukraine, the PPA market reached an all-time high. However, PPAs have continued to flourish even after the crisis, because long-term green electricity supply contracts protect companies from price hikes while also helping them to meet their decarbonization requirements.

You are using an outdated browser

The website cannot be viewed in this browser. Please open the website in an up-to-date browser such as Edge, Chrome, Firefox, or Safari.