On-site PPA: an opportunity for cheaper electricity and renewable energy development in Slovakia

PPA contracts (Power Purchase Agreements) are a tool that enables the direct connection of electricity producers from renewable sources with end consumers, while providing price stability and supporting investment in green energy. A specific type is the so-called on-site PPA, which has the potential to fundamentally change the way electricity is supplied to businesses in Slovakia.

What is an on-site PPA?

An on-site PPA represents a contractual model in which the electricity generation source is physically located directly on the consumer’s premises or in its immediate vicinity and is directly connected to it. Electricity generation and consumption thus take place “on-site,” without using the grid.

The main advantage of this model is economic efficiency. Since electricity does not pass through the distribution system, certain regulated fees does not apply to it, which can result in a significantly lower electricity price for the consumer.

At the same time, such a model brings greater price stability and cost predictability, which is crucial for the business sector, especially during periods of energy price volatility. For electricity producers, on-site PPAs represent a stable off-take and certainty of return on investment.

Why can a local source serve as an on-site PPA?

Slovak legislation already recognizes the concept of a so-called local source [1], which is technically very similar to an on-site PPA. A local source allows electricity to be generated directly at the point of consumption and consumed without using the grid, thereby also saving regulated fees.

However, the fundamental difference lies in the identity of the producer and the consumer. Under the local source regime, the producer and the consumer must be the same entity [2]. This limitation prevents the use of a local source for the on-site PPA model, as the essence of an on-site PPA is (among other things) the difference between the producer and the consumer. In other words, in the case of a local source, there is no supply of electricity between a producer and a consumer, but rather consumption of self-generated electricity. By contrast, the basis of the on-site PPA model is the supply of electricity by one entity (the producer) to another entity (the consumer).

What are the main obstacles to the development of on-site PPAs in Slovakia?

Despite their clear advantages, it is currently not possible to effectively implement on-site PPAs in Slovakia. There are several legislative and regulatory barriers.

The first major barrier is the impossibility of connecting an electricity producer through the consumer’s connection point, because the current legal framework allows only one entity at a single connection point. This excludes a situation where both the consumer and an independent producer would be connected at the same point.

The second significant obstacle is legal uncertainty in assessing the physical connection between the producer and the consumer. There is a risk that such a connection could be classified as a so-called direct line [3]. The direct line regime is set very strictly, and its implementation is virtually impossible in practice – not a single direct line has been built to date [4]. This uncertainty may discourage potential investors.

The development of PPAs is also an obligation arising from European Union (EU) [5] law, which requires Member States to remove regulatory and administrative barriers and to create suitable conditions for long-term contracts between producers and consumers.

It is therefore essential that the legislator create a legal framework enabling the implementation of on-site PPAs, clearly defining connection conditions and removing the above-mentioned obstacles. The solution must also include the establishment of practical procedures for connecting facilities at the level of implementing regulations, which must reflect the specific characteristics of the on-site model.

Implications for practice

For this reason, in cooperation with SAPI, a legislative solution for the on-site PPA model has been prepared, taking into account Slovak conditions and the legal framework. Its implementation would have a significant impact on the renewable energy sector.

The introduction of a functional framework for on-site PPAs in Slovakia represents an opportunity to support the business sector, increase the share of renewable energy sources, and, at the same time, meet obligations arising from EU law. By removing existing legislative barriers, companies would be able to procure electricity directly from producers under more favorable conditions, thereby increasing their competitiveness and energy independence.

On-site PPAs are therefore not only a legal-technical issue, but also a strategic tool for modernizing the Slovak energy market.

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[1] Section 2(3)(o) and section 4b of Act No. 309/2009 Coll. on the promotion of renewable energy sources and high-efficiency cogeneration and on amendments to certain acts.

[2] Section 5(7) of Decree of the Regulatory Office for Network Industries No. 207/2023 Coll., which lays down rules for the functioning of the internal electricity market, the content requirements of the operating rules of the system operator and the short-term electricity market operator, and the scope of commercial terms and conditions that form part of the system operator’s operating rules.

[3] Section 2(b)(6) and section 13 of Act No. 251/2012 Coll. on energy and on amendments to certain acts.

[4] See the list of direct lines maintained by the Regulatory Office for Network Industries, available at the following link: https://www.urso.gov.sk/zoznam-priamych-vedeni-podla-13-ods-4-zakona-c-2512010-zz-o-energetike/

[5] Article 3(4a) and Article 15(8) of Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources in the consolidated version; Article 19a of Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity in the consolidated version.