Off-Site vs. On-Site Power Purchase Agreements (PPA)

Overview of Power Purchase Agreements in Commercial Procurement

Power Purchase Agreements (PPAs) are long-term contractual arrangements used by commercial and industrial organizations to secure electricity from a specific generation source at predefined terms. PPAs are not commodity supply contracts; they are financial and operational agreements that allocate pricing, performance, and market risk over extended periods.

For commercial buyers, the choice between an off-site and on-site PPA has material implications for procurement flexibility, balance sheet exposure, operational responsibility, and long-term risk. ALFIA Energy Brokerage evaluates PPA structures strictly as strategic procurement instruments, not as sustainability initiatives.

What Defines an On-Site PPA

An on-site PPA involves the installation of a generation asset, typically solar, at the customer’s facility. The customer agrees to purchase the electricity produced by that asset under a long-term contract.

Key characteristics of on-site PPAs include:

• Physical generation located at the customer site
• Direct offset of facility electricity consumption
• No upfront capital investment by the customer in most cases

Electricity generated is consumed behind the meter, reducing grid purchases.

What Defines an Off-Site PPA

An off-site PPA involves contracting with a remote generation project that delivers electricity into the grid rather than directly to the facility. The buyer receives financial settlement or credits tied to the project’s output.

Key characteristics of off-site PPAs include:

• No physical assets at the customer location
• Electricity settled financially rather than physically delivered
• Greater scalability across multiple facilities

Off-site PPAs are portfolio-level procurement tools.

Operational Responsibilities and Control

Operational responsibility differs significantly between on-site and off-site PPAs.

On-site PPA considerations include:

• Coordination with facility operations
• Site access and maintenance scheduling
• Impact on future site modifications

Off-site PPAs largely remove operational interaction from the customer.

Pricing Structure and Cost Predictability

Both PPA types offer long-term price visibility, but cost mechanics differ.

Pricing considerations include:

• Fixed PPA pricing versus market settlement exposure
• Impact on blended electricity costs
• Interaction with existing supply contracts

Cost predictability depends on structure, not label.

Risk Allocation Differences

PPAs allocate different categories of risk depending on structure.

On-site PPA risks include:

• Site-specific performance risk
• Facility usage changes over time
• Asset integration constraints

Off-site PPA risks include:

• Market settlement risk
• Basis risk between project and load location
• Long-term contract exposure

Understanding risk allocation is critical.

Flexibility and Exit Considerations

PPAs are long-term commitments with limited flexibility.

Evaluation should consider:

• Contract duration and termination provisions
• Transferability in the event of facility changes
• Alignment with occupancy and business horizons

Flexibility constraints often outweigh projected savings.

Portfolio-Level Implications

For multi-location organizations, off-site PPAs offer broader applicability, while on-site PPAs are location-specific.

Portfolio strategy involves:

• Evaluating scalability across facilities
• Avoiding fragmented procurement decisions
• Maintaining centralized governance

ALFIA evaluates PPAs within a unified portfolio framework.

Budgeting and Accounting Considerations

PPAs can affect budgeting, forecasting, and accounting treatment. Long-term commitments require careful alignment with financial planning cycles.

Considerations include:

• Long-term price commitments
• Potential accounting classification impacts
• Forecasting assumptions over extended horizons

Financial discipline is essential before execution.

Who Should Consider Off-Site vs. On-Site PPAs

On-site PPAs are most relevant for:

• Owner-occupied facilities
• Stable long-term site usage
• Facilities with suitable physical conditions

Off-site PPAs are more appropriate for:

• Multi-location organizations
• Portfolio-level renewable exposure
• Buyers seeking scale without site constraints

How ALFIA Evaluates PPA Structures

ALFIA Energy Brokerage evaluates PPA structures based on risk tolerance, operational realities, and integration with overall procurement strategy. We act as broker of record, ensuring PPAs complement rather than complicate energy portfolios.

Long-Term Strategic Implications

PPAs are long-term strategic commitments. Poorly structured agreements can constrain flexibility and distort procurement outcomes for decades.

Next Steps

Off-site and on-site PPAs should be evaluated deliberately within a comprehensive commercial energy procurement strategy.

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