There are many different types of contracts in the Renewable Energy industry. How can you best manage them if you have a variety of different structures in your portfolio that will accommodate different regions? First, let’s start off by defining some of these contracts that are used in the in US, Canada and the EU markets. Then we can look at methods on how to digitally track the rate structures, contract terms and calculations that determine your revenues and expenses.
- Fixed PPA – A power purchase agreement contract that is based on a simple kW/h or MW/h rate.
- Escalated PPA – A contract that is based on a simple kWh/MWh rate that includes an escalation mechanism such as percentage escalation
- Time of Day (TOD) – A contract that changes depending on the season, weekday, weekend, holiday and time of day. They can have different rate types depending on the peak and off-peak time of day.
- Prepaid PPA – A contract that has prepaid rates and is adjusted after the fact, based on usage.
- A contract that has a base rate for O&M services plus additional rates that are based on specific conditions that apply (such as performance guarantees, Availability guarantees etc.).
- Renewable Energy contracts where you gain credits based on your energy generation.
- Feed in tariff contracts that are based on energy used by the system vs. energy exported to the grid.
- Contracts that are based on indexes set out in specific regions. For example, certain regions may have different pricing structures that change on a yearly basis. The rates are calculated based on formulas derived from these indexes.
- Rooftop rental: (right of superficies) rental contract of rooftops where one can use the roof of the building to place solar panels on.
- An operational lease of the PV installation as a rental agreement of roof, land, or property.
- Injection of generated energy that hasn’t been consumed at site but has been injected into the grid
- An Insurance policy for the PV installation that covers the risks of the PV installation.
- A contract rate that is based on market rates
These are just some of the most commonly used contracts in the industry. So what’s the best way to digitize these contracts into the most useful information that can used to calculate different metrics?
Today, many use Outlook, Dropbox and many Excel files to go about their business. With enough manpower and manual work, you can get away with it up to a certain point before you find yourself underwater. This methodology is prone to human error and is not scalable. It can be very costly because tasks and deadlines get missed, and there is a lack of oversight and workflow. With any employee turn-over the process of training can also cost a company unexpected time and money and information can be lost.
The forward-looking companies use software to track and automate their processes. Here is are 6 steps on how they manage the contracts:
- All contract information is converted into trackable data within an asset management platform. The contracts are digested by the system by breaking them down into three sections. Rate structure, contract terms and calculation output. The original contract electronic document is also attached for quick reference.
- The rates are used along with the production data coming through an integration with the monitoring system to calculate the revenue. This should be fully automated.
- The billing is also automated within the invoices using that contract information and are generated and sent directly from the system.
- Any compliance events are tracked and triggered based on different criteria, such as the expiry of the contract or any guarantee in place etc. Reminders and follow-up tasks are automatically generated.
- The calculated revenue is compared against the budgeted data to identify gaps, and variances in the budget module.
- Reports can be generated against any information stored in the system (ex. contracts, invoices, compliance events or production monitoring data).
No matter what type of contract you have the system will dynamically absorb the information in different templates and breakdown the variables to give you a calculated output that can be used for KPIs, billing or reporting purposes.
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