In a physical AAE, an organization signs a long-term contract with a third-party supplier that agrees to build, maintain and operate a renewable energy system either on the customer`s land (on-site) or off-site. Whether the system is on site or not, the physical customer of the AAEs receives the physical supply of (or ownership) of electricity on the grid. The customer agrees to purchase the service at a specified price beyond an agreed date and the seller assumes the risks associated with the ownership and operation of the system. Many physical PPP contracts include an escalator above the price, but these escalation rates are generally lower than the historical price increases associated with the standard price of electricity supplied by suppliers. At the end of the term of the contract, many Physical PPAs using on-site systems offer the customer the opportunity to sign a new contract or acquire the system at its fair value. In this way, some customers can combine immediate savings (thanks to the physical AAE) with the ultimate benefits of owning the system. With a physical AAE, the customer receives the physical supply of electricity by the seller on the grid, while he does not do so with a contract to purchase financial electricity (AAE). This is the essential difference between a physical AAE and a financial AAE. A Physical Power Purchase Agreement (Physical Power Purchase Agreement) for electricity generated from renewable sources is a contract to purchase electricity and UC related by a generator (seller) to a renewable electricity buyer (buyer). Physical AAEs, which are generally 10 to 20 years of agreements, define all commercial terms for the sale of renewable electricity between the two parties, including when the project will begin to operate commercially, the timing of electricity delivery, delivery penalties, payment terms and termination. The project can be located on site on the user`s site or off site, with electricity being delivered to the buyer. Physical AAEs of non-utility consumers are generally only permitted in competitive electricity markets and the producer and purchaser of renewable energy must be in the same market to allow the physical supply of electricity.
Since RES are treated differently in each physical AAE, it is important that the client understands THE ownership of REC in his or her respective contract. Often, RETs are not passed on to the customer, but sold by the project owner in the compliance market.