Industrial Power PPAs: Fixed, Floating and Profile Risk

AI-generated editorial illustration; it does not depict a verified project, actual prices or chart data.

1. Economic decision

A fixed PPA fixes a contractual price, not necessarily the complete factory bill. Volume, hourly shape, node difference, balancing and network charges can remain floating. Compare contracts against the same hourly factory load. Annual generation equal to annual consumption does not imply full coverage when production and consumption occur at different times.

2. Evidence and dates

World Bank observes TTF gas at 21.11 USD/MMBtu in August and 25.42 in September 2026, illustrating a changing fuel benchmark rather than a delivered electricity tariff. The EIA October 6 outlook, completed October 1, forecasts 52 USD/MWh annual US wholesale power in 2026; it is not an observed October PPA price. DOE explains why matching supply and demand matters for storage. No verified public August–September offer for this particular factory is assumed.

3. Cost boundary

The example uses nominal USD for one year at the factory energy settlement boundary. Network, demand, tax, certificates, financing and collateral charges are excluded and must be added for a complete bill. Assume a physical pay-as-produced contract; a financial contract requires explicit strike-versus-reference settlement and local power purchases. Do not combine the physical and financial accounting rules.

4. Worked calculation

The factory consumes 20000 MWh. A PPA supplies 14000 MWh at 55 USD/MWh, costing 770000 USD. Only 13000 MWh coincide with load: 1000 MWh are sold at 60 USD/MWh for 60000 USD, while 7000 MWh are bought at 80 USD/MWh for 560000 USD. Net energy cost is 770000 + 560000 − 60000 = 1270000 USD, or 63.50 USD/MWh of factory consumption. A simple 70% annual coverage ratio would miss these separate purchases and sales.

5. Sensitivity

With excess-sale price held at 60 USD/MWh, residual purchase prices of 60, 80 and 100 USD/MWh give costs of 1130000, 1270000 and 1410000 USD. Each 20 USD/MWh change alters the bill by 140000 USD. If the surplus price falls to 20 USD/MWh, the base bill rises another 40000 USD. Correlation matters: cheap surplus and expensive shortfall can occur together, so separate favorable assumptions must not be assembled into an unrealistic best case.

Illustrative 20000 MWh annual load: 14000 MWh hedged at 55 USD/MWh and 7000 MWh residual purchased, less 1000 MWh excess sold at 60 USD/MWh. All values exclude network charges and taxes.

6. Contract and operating evidence

Require hourly delivery and load files, index name, node, currency, settlement interval, negative-price terms and imbalance allocation. Check outages, minimum purchase, credit support, termination payment and certificate ownership. For floating procurement, define index publication and fallback rules. For fixed procurement, test whether volume and shape match production shifts. A demand reduction in one expensive hour can be more valuable than equal annual energy saved in cheap surplus hours.

Basis risk is distinct from shape risk. If the contract hedge references one hub while residual factory purchases settle 10 USD/MWh above it, 7000 MWh residual volume adds 70000 USD to this example. The spread is illustrative, not a measured September hub difference. A financial hedge can also produce cash settlements on contracted volume while leaving the entire physical purchase exposed locally; document that separately rather than assuming physical delivery.

7. Questions and next steps

Does fixed mean no risk? No, identify the components actually fixed. Does annual 70% coverage mean hourly 70%? No. Can surplus sales fund all shortfalls? Only at the actual prices and volumes. Use the wind capture-price guide and metering guide to reconstruct the settlement basis.

8. Primary references

[1] World Bank October 2026 Pink Sheet

[2] EIA October 2026 STEO

[3] DOE solar and storage basics