In a sleeved PPA, electricity generated from a solar asset can be ‘sleeved’ to other sites despite not being physically connected to the source of demand (via an energy supplier). Sometimes referred to as a 'Direct PPA', 'Corporate PPA’ or ‘Retail PPA’.

This model can be enacted by local authorities as follows:

Local authority (as generator) designs, builds and commissions solar generation asset.
Renewable energy generated by the solar asset is purchased by the local authority (as offtaker) at an agreed upon volume and price (as stipulated in the Sleeved PPA contract).
Renewable electricity is exported to the grid and ‘sleeved’ to local authority owned sites.
An energy supplier (or other balancing responsible party) is required to facilitate the ‘sleeving’ and will charge a fee for this service.

There an arrangement is referred to as a ‘Sleeve to Self’ PPA where the local authority assumes the role of generator and offtaker.

A sleeved PPA is when an organisation “sleeves” their generated power to their own sites despite not being physically connected
An energy supplier facilitates the sleeving and will charge a fee dependent on location and time of generation
The generator and off-taker will agree a price structure for the lifetime of the PPA, even if they’re the same organisation
Reduction in CO₂ emissions through transfer of Renewable Energy Generation Origin (REGOs) certificates for the energy purchased
Can include storage to increase revenue opportunities

Key Benefits

Financial and CO₂

Decrease in energy bills for off-taker
Minor uplift in revenue as a generator depending on PPA setup
Provides long term price security for generator and off-taker
Reduces carbon emissions – for off- taker through the purchase of REGOs

Other Benefits

Local skills and jobs
Easy to setup
Highly scalable if right sites can be found in local area

Risks and Considerations

Limited commercial viability for smaller scale projects and more complicated sites
Business case dependent on future energy price forecasting
Existing supply contracts may not include best value terms for sleeving, need to negotiate at the same time supply contract is up for renewal
Best pricing will be for projects, or aggregation of projects, above 5MW

Most Suitable for

Technology – solar and potential for storage
Local authorities looking to invest in renewable energy assets and with a large public sector estate to decarbonise
Where rooftop solar is more difficult to do#
Values long term price stability and guaranteed 100% renewable electricity
Where the local authority does not want to own assets, they can still setup different PPA variations with generation owned by a 3rd Party

Contracts Required

Renewable Energy PPA – price, term, volume
Utility/off-taker PPA –this second PPA requires the utility to act as the buyer’s agent in managing the off-take of power from the generation facility. The Utility PPA will pass the REGO certificates to the off-taker.
Generator/utility off-take PPA – this agreement makes provision for the generator to supply the utility and for the REGO certificates to pass from the generating station to the utility
Aggregation – if storage is involved and looking to make additional revenue from flexibility services

Contractual Considerations

Contracting is straightforward and there are industry standards which energy suppliers can help facilitate.
Existing supply contracts may not include terms for sleeving and balancing in which case it may be necessary to wait for the end of the existing supply contract prior to entering into a sleeved PPA
The additional sleeving can be a challenge to business cases, potentially making the power purchased more expensive than wholesale power.

Business Model

Viability

Costs Structure

Revenue

In a sleeved PPA, renewable energy from a solar generation asset is netted off against an offtaker’s energy demand by an energy supplier.
A ‘sleeve to self’ arrangement, where the local authority assumes the role of generator and offtaker, allows the local authority to satisfy (some or all of) their energy demand using power from the solar asset(s) they own.
Some energy suppliers may permit local authorities to aggregate multiple generation assets in sleeving agreements.
The commercial benefits of a sleeved PPA are discussed below from a generator’s and offtaker’s perspective.

Generator Benefits

Revenue Generation

Generator receives payment for power generated; referred to as the ‘PPA Price’. This is inclusive of the agreed upon power price (p/kWh) and the REGO price minus any supplier fees and third-party charges.

The PPA price paid to a generator could sometimes be lower than the wholesale price of electricity (see image to right). However, depending on the pricing structure adopted, PPAs can offer a level of price certainty that wholesale market (merchant) trading cannot. Generators typically value certainty over absolute revenue as most generators are financed, requiring scheduled repayments to made each month.

When energy generation is greater than demand, additional revenue may be generated by exporting surplus energy to the grid. This will require an additional export agreement.

Offtaker Benefits

Cost Savings

The ‘PPA Price’ is set so that the offtaker (generally) pays less for electricity than the wholesale (commodity) price. In turn, they see a reduction in their electricity bills. The offtaker is still subject to other non-commodity charges such as network costs, environmental and social obligation costs and sleeving fees.

Offtakers may also be exposed to higher energy supplier fees which should be factored into account to ensure that the PPA delivers overall net savings.

Feasibility

Key Partnerships

To enact the Sleeved PPA model, the following contracts are likely to be required:

Sleeved PPA contract between the generator and offtaker that stipulates key terms (e.g., PPA price, volume and contract duration).
Contract between the generator and energy supplier that makes provisions for the transfer of energy and REGOs (if the generator is not retaining REGOs for themselves).
Contract between the energy supplier and offtaker, which makes provisions for the transfer of REGOs (if applicable) and outlines how the output of the generation facility will be credited against the offtaker’s electricity demand.

An additional commercial agreement between the generator and a balancing responsible party will be required for any surplus solar energy that is exported to grid.

If the asset is under 5MWp, it may be eligible for Smart Export Guarantee.
SEG licensees are obliged to offer tariffs and pay eligible generators for exported energy (Ofgem, 2023). In turn, they are responsible for choosing the tariff rate, contract length and other key terms.
Findings from external engagement indicate that there is currently a high demand for PPAs in the UK and Europe more widely.
During external engagement it was also explained that some public sector organisations, in the past, have received limited tender responses when looking to procure PPAs from third party generators.
However, there are still some examples of public sector organisations that have successfully procured renewable energy through a sleeved PPA.
This includes the City of London Corporation (Voltalia, 2022) and a group of twenty UK universities (as part of an aggregated PPA with Statkraft)

Generator	Designs, develops, constructs, and oversees the operation and maintenance of a renewable generation project (some of these activities may be outsourced to third-party organisations). Owns the asset(s) of a renewable generation project.
DNO	Provides grid connection offers and grid connection agreements for sites (depending on the stage of project delivery).
Funding/ Finance Provider	Advises on eligibility, loan structures and repayment terms. Provides the necessary funds to cover project costs through a contractual agreement with the generator.
Offtaker	Purchases and consumes electricity from the generator (asset owner) of the renewable generation asset(s) through a Sleeved PPA.
Energy Supplier (and/or other BRP)	Facilitates the ‘sleeving’ of energy between the generator and offtaker of the renewable generation system. Purchases surplus solar energy that is exported to grid from the generator (this may be a different company to that facilitating the Sleeved PPA). Provides balancing services and charges the offtaker for any additional power not met through the Sleeved PPA.
Delivery Contractor	Responsible for the design and/or build of the renewable generation project (depending on the delivery approach chosen)* Some delivery contractors may also take on O&M responsibilities. Some activities may be subcontracted to other companies.
Legal Advisor	Provides legal guidance on the contractual elements of project delivery (e.g., energy supply contracts, Sleeved PPA contract).
O&M Contractor	Responsible for managing the operations and maintenance of a renewable generation asset on behalf of the generator. Some activities may be subcontracted to other companies
Decommissioning Contractor	Responsible for the decommissioning of the renewable system once it has reached the end of its usable life. Responsible for repurposing the site. Some activities may be subcontracted to other companies.

Key Activities

Soft Market Testing

It is important that local authorities engage with energy suppliers as early as possible during project delivery to understand what products and services are available (e.g., are they able facilitate a sleeved PPA and at what cost?).
The terminology used by energy suppliers in relation to PPAs differed considerably; both in terms of what was understood by the PPA type (i.e., sleeved PPA, utility PPA, etc.) and what was understood by certain fees (i.e., sleeving fees, shaping fees, etc.). This could make it difficult for local authorities to compare products and services on a like-for-like basis.
It is important to ensure that all stakeholders are aligned on terminology as assumptions around the PPA type, pricing structure and other fees will feed into subsequent commercial assessments.
To provide quotations for their services, an energy supplier will likely require data such as annual solar generation forecasts and half-hourly energy demand data from sites to be included in the Sleeved PPA arrangement. Having access to such data as early as possible can help avoid unnecessary project delays

Key Resources

Site Selection

In a sleeved PPA, the solar asset is not physically connected to the point of energy off-take (the site). This means that there is some flexibility when identifying an optimal generation site. For example, if a local authority is constrained by land availability, they may wish to explore the suitability of sites outside of the area.

When undergoing site selection exercises for solar farms, the following factors should be considered:

Land Size – As a rule of thumb, roughly 5 acres of land will be required per 1MW of renewable generation capacity.
Land Condition – Clear, flat land with minimal decline is preferred.
Infrastructure Proximity – Good accessibility to roads and closeness to existing grid infrastructure is recommended to keep project costs down (The Renewable Energy Hub UK, 2021b).
Brownfield sites are generally considered good locations for solar development projects due to their proximity to existing infrastructure.
Several local authorities have developed solar projects on brownfield sites including Cambridgeshire County Council (Soar Power Portal, 2021) and West Sussex County Council (West Sussex County Council, 2022).
Desk-based research shows that local authorities which have secured sleeved PPAs (i.e., Warrington Council and West Sussex County Council), have done so for ground-mounted solar PV farms at the megawatt scale.

Energy Supply Connection

It can take between 6-18 months for a sleeved PPA agreement to be implemented. Findings from external engagement suggest that procurement and legal consultations account for a significant portion of this time.

Where possible, the PPA start date should align with the energisation date of the asset; especially if commercial modelling is based on this assumption.
Findings from external engagement also suggest that it is possible for local authorities to secure temporary export arrangements whilst waiting for PPA agreements to be finalised.
Where this is the case, the local authority should check whether the temporary agreement aligns with funding stipulations (if applicable).
The implementation of PPAs may also need to align with the renewal of energy supply contracts. For example, some existing energy supply contracts may not permit sleeving meaning that the local authority may have to wait until their existing contract comes to an end before securing a PPA with an alternative supplier.
If the length of an energy supply contract is shorter in duration than the PPA contract, provisions should be made to ‘port’ balancing and shaping responsibilities (typical supplier tasks associated with facilitating a sleeved PPA) to a new electricity supplier (Crown Commercial Service, 2020).

Desirability

There are different roles that a local authority could adopt within each of the short-term business models (e.g., generator, offtaker or generator and offtaker). The role adopted within a business model will have different implications for viability (e.g., revenue generation, cost-savings, price certainty) and feasibility (e.g., resource requirements). It will also have its own level of risk (e.g., market (price) risk, revenue risk, operational (volume) risk and counter-party risk). As a result, some roles may be more desirable (of more value) than others to a local authority.

Value Proposition, Customer Relationships, Customer Segments, Channels

Local Authority as Generator

Desirability Checklist	Considerations
Revenue Generation	Do you value revenue generation more than reducing costs?	As generator, the local authority will not benefit from cost savings as they are not purchasing and consuming renewable energy from the asset. Instead, they would have access to the following two revenue streams: Primary Revenue Stream: Selling renewable energy to a third party offtaker as per the Sleeved PPA agreement. Additional Revenue Stream(s): Exporting (and selling) surplus renewable energy to the grid (if applicable).
Revenue Generation	How much do you value the opportunity to maximise revenue generation potential?	The value of the primary revenue stream is highly likely to be greater than the additional revenue stream on a p/kWh basis. Therefore, revenue generation potential depends on how well renewable energy produced by the generator and energy demand of the offtaker are matched (i.e., how much energy is sold through the Sleeved PPA). However, revenue generation potential also depends on the pricing structure adopted. Pricing structures that are linked to wholesale market prices (e.g., dynamic pricing) allow the local authority to benefit financially when wholesale electricity prices are high. However, market volatility could affect revenue generation potential significantly throughout the duration of the PPA agreement.
Price Certainty	Do you value revenue and cost certainty?	Revenue certainty is influenced by the length of the PPA contract (which can last from 1-25 years) and the pricing structure adopted. Longer term contracts in combination with certain pricing structures can provide greater revenue visibility for the local authority, which could increase investor confidence. The fixed pricing structure is most common and offers the greatest level of revenue certainty. If opting for a fixed pricing structure, the local authority would not benefit financially if wholesale electricity prices rose higher than the PPA power price. The local authority will therefore need to consider the potential trade-off between revenue generation potential and revenue certainty. Typically, generators have more negotiation power when agreeing upon the desired power price, pricing structure and contract length as they have certain financial metrics that must be achieved. As generator, the local authority would be responsible for paying imbalance costs to an energy supplier (or other BRP). The total imbalance cost depends on how much actual generation (from the asset) differs from forecasted generation. There is therefore a degree of uncertainty associated with this cost.
Risks	Are you willing to take on some risk?	As generator, the local authority takes on some volume risk. For example, if they are unable to supply the volume of energy as stipulated in the PPA contract, they may face financial penalties. If opting for a pricing structure that is linked to wholesale electricity prices, the local authority would also be exposed to market (price) risks.
Resource Requirements	Do you have the resource and expertise available to deliver renewable generation projects?	As generator, the local authority would be responsible for designing, building, commissioning, operating, maintaining and decommissioning the asset(s)*. If carried out internally, this will require significant resource. Though, these activities may be subcontracted to third-party organisations at a cost. The local authority will also need to undertake commercial modelling to understand what PPA price is necessary to achieve desired financial metrics for project sign-off.
Resource Requirements	Do you have access to legal support?	Legal support, either in-house or external, would be required for negotiating key contractual terms with the offtaker (e.g., price, contract length and volume).

Local Authority as Offtaker

Desirability Checklist	Considerations
Cost Savings	Do you value cost savings more than generating revenue?	•As an offtaker in a Sleeved PPA, the local authority would not generate revenue as they are not selling renewable energy to a third-party organisation. •Instead, they should achieve cost savings by purchasing electricity, via the PPA, at a lower cost than the retail price of electricity (on a p/kWh basis).
Cost Savings	How much do you value the opportunity to maximise cost-savings?	•Cost savings achieved in the Sleeved PPA will likely be less than those from a private wire arrangement (see Private Wire – Local Authority as Offtaker). •For example, as offtaker, the local authority would still be responsible for paying sleeving fees (as well as other energy supplier fees and pass-through costs). •Sleeving fees can vary significantly amongst energy suppliers, and higher fees will reduce the amount of cost savings available to the local authority.
Price Certainty	Do you value cost certainty?	•Cost certainty depends on the length of the PPA contract (which can last from 1-25+ years) and the pricing structure adopted. •Longer term contracts in combination with certain pricing structures can increase cost visibility for the local authority which can inform budgeting and forecasting activities. •For example, the fixed pricing structure is most common and offers the greatest level of cost certainty.
Risks	Are you willing to take on some risk?	•If opting for a fixed pricing structure, the local authority will be exposed to market risk. •If wholesale electricity prices fall, the local authority could end up paying more for electricity through the Sleeved PPA than they may at the retail rate (on a p/kWh basis). •This is an important consideration at present as wholesale market electricity prices have fallen recently since record breaking peaks were observed during the energy crisis.
Resource Requirements and Expertise	Do you have time and resource available to undergo soft-market testing?	•The local authority will need to undertake soft market testing with energy suppliers (or other BRPs) to find the best value quotation for sleeving services. •The terminology used by suppliers may differ, which could make it difficult to compare quotes on a like-for-like basis and could make this activity time intensive.
Resource Requirements and Expertise	Do you have access to legal support?	•Legal support will be required to implement the Sleeved PPA. •For example, the local authority’s existing energy supply contract will need to be reviewed to understand whether sleeving is permitted. •If the local authority’s current energy supply contract does not permit sleeving, they may need to wait until their contract is up for renewal before entering into a PPA. •There is a risk that this may not align with the anticipated delivery timelines of the third-party generator and could result in the agreement falling through.

Local Authority as Generator and Offtaker

Desirability Checklist	Considerations
Revenue Generation and Cost-Savings	Do you value generating revenue and reducing costs?	•When assuming the roles of generator and offtaker, the local authority will benefit from revenue generation and cost savings. •This allows the local authority to set the PPA price to whatever best aligns with the underlying objectives of the project. •For example, the price could be set so that cost savings are maximised (so long as the project pays back) or so that revenue generation is maximised for investment in future decarbonisation projects. •Energy supplier, sleeving, and pass through costs should still be considered when determining the optimal PPA price during commercial modelling exercises.
Price Certainty	Do you value price certainty?	•Price (revenue and cost) certainty is dependent on the length of the PPA contract, and the pricing structure adopted. •As generator and offtaker, the local authority can agree upon a contract length and pricing structure that is best suited towards their appetite for risk. •Longer term contracts with a fixed pricing structure can maximise price certainty for the local authority.
Risks	Are you willing to take on some risk?	•All risks previously identified could still be applicable to local authority assuming the role of generator and offtaker. •Though, please note that some depend on the pricing structure adopted.
Resource Requirements	Do you have the resource and expertise available to deliver renewable generation projects?	•All activities previously identified for ‘Local Authority as Generator’ and ‘Local Authority as Offtaker’ are still applicable to the local authority adopting both roles. •Resource requirements will be considerable as a result. •Although the local authority will still need to undertake soft-market testing with energy suppliers (or other BRPs), they will not be required to go out to tender for a suitable third-party PPA partner (e.g., generator or offtaker). •For example, as a generator, the local authority would need to go out to tender for a third-party offtaker. •Similarly, as an offtaker, the local authority would need to go out to tender for a third-party generator.

Business Model: Sleeved PPA

This resource is part of a collection

Topics

Key Benefits

Financial and CO₂

Other Benefits

Risks and Considerations

Most Suitable for

Contracts Required

Contractual Considerations

Business Model

Viability

Costs Structure

Revenue

Generator Benefits

Revenue Generation

Offtaker Benefits

Cost Savings

Feasibility

Key Partnerships

Key Activities

Soft Market Testing

Key Resources

Site Selection

Energy Supply Connection

Desirability

Value Proposition, Customer Relationships, Customer Segments, Channels

Local Authority as Generator

Local Authority as Offtaker

Local Authority as Generator and Offtaker

Register to access the full article

Free UK Local Authority access

Business Model: Sleeved PPA

This resource is part of a collection

Topics

Key Benefits

Financial and CO2

Other Benefits

Risks and Considerations

Most Suitable for

Contracts Required

Contractual Considerations

Business Model

Viability

Costs Structure

Revenue

Generator Benefits

Revenue Generation

Offtaker Benefits

Cost Savings

Feasibility

Key Partnerships

Key Activities

Soft Market Testing

Key Resources

Site Selection

Energy Supply Connection

Desirability

Value Proposition, Customer Relationships, Customer Segments, Channels

Local Authority as Generator

Local Authority as Offtaker

Local Authority as Generator and Offtaker

Register to access the full article

Free UK Local Authority access

Financial and CO₂