Figure 3. A visual representation of a ‘typical’ sleeved PPA
A sleeved PPA is an arrangement whereby a licenced energy supplier is involved to manage the sale of electricity between a generator and an end user or several end users. This can include domestic households, commercial premises or industrial users. This is typically not a physical transfer of energy via private wires or the local distribution network. Rather, the licenced supplier agrees to purchase electricity from the generator, sell it to buyers in the market, and manage the transaction.
Licenced suppliers are involved generally to manage metering and billing functions, and to ensure robust consumer protections where domestic households are involved, enabling community generators to reach domestic consumers directly. The most rudimentary form of a sleeved PPA is a local tariff, where a supplier will agree to purchase electricity from the local generator and sell it to consumers who are signed up to that tariff, generally at a discounted price. However, there is no inherent local element to this: under a sleeved PPA, a generator can sell to anyone in the country, provided they have agreed to buy (either under a specific tariff or a designated single off-taker e.g. commercial premises).
The price of a sleeved PPA will typically be set to ensure certainty for the organisation developing the generation (i.e. on a long-term, fixed-price basis) and to reduce the end users’ exposure to the wholesale market price. The agreed price can also be adjusted to account for the additional local social and economic value that a project might bring if it contains elements of community or local ownership.
Non-commodity relief: Per The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, under a sleeved PPA arrangement, generators below 5MW which do not at any time supply more than 2.5MW can be exempt from environmental and policy costs, equating to approximately 5.07p/kWh by summer 2024 prices.
