PPAs and corporate governance: who bears the risk of the energy transition?

1. Energy prices and the risk assumed by the business

A business enters into a contract to purchase renewable energy at a fixed price for ten years. The price is competitive, the term allows procurement to be planned, and the transaction contributes to environmental objectives. All the conditions for regarding the choice as prudent appear to be present. Yet, a few years later, that same business could find itself bearing costs substantially different from those presented at signature, providing further security precisely when liquidity is declining, or paying for energy that its industrial plan no longer requires. The contract could be performed in full while producing consequences far removed from those on which the decision was based.

The legal issue raised by Power Purchase Agreements, commonly known as PPAs, lies in this gap between the negotiated price and the exposure assumed. Their expansion is usually described in terms of their contribution to decarbonisation, stable producer revenues and protection for industrial consumers against volatility. These are real and significant functions. To understand their implications, however, it is necessary to examine the mechanism through which they are achieved: a long-term commitment that allocates the economic consequences of variable generation, market fluctuations, credit risk and infrastructure development among different parties.

The argument I wish to advance is that a PPA should be understood as a corporate governance decision in which purchasing energy and assuming risk remain distinct, although economically inseparable. The protection offered by the contract depends on the correspondence between the obligations assumed and the organisation’s ability to understand, bear and manage them over time. An agreement may provide an energy project with revenues predictable enough to obtain financing while leaving the industrial buyer exposed to consequences that its financial or production structure cannot absorb. The bankability of the plant and the sustainability of the procurement arrangement are two different assessments. Their convergence must be constructed.

2. PPAs between European energy policy and freedom of contract

The European legislature shows an awareness of this relationship. Regulation (EU) 2019/943, as amended by Regulation (EU) 2024/1747, defines power purchase agreements in Article 2, point 77, and promotes their use in Article 19a to support price predictability and decarbonisation objectives. The same provision addresses access to guarantee instruments designed to reduce the financial risk associated with buyers’ payment default. Opening up the PPA market therefore also requires attention to the solvency of those undertaking to purchase. The duration of the relationship creates value for the investor because it makes the buyer’s future payments reasonably reliable.

Commission Recommendation (EU) 2026/917 of 22 April 2026 on removing barriers to the development of PPAs and other energy purchase agreements provides a particularly useful account of this structure. It distinguishes physical from financial agreements and considers volume, profile, balancing, credit and price differential risks. The recommendation remains a non-binding policy instrument: the solutions it proposes must be distinguished from obligations arising under binding sources. Its significance also lies in showing that contracts sharing the same acronym can allocate profoundly different exposures to the parties.

A relationship between energy policy and freedom of contract thus emerges that warrants careful examination. The producer undertakes an investment whose viability depends, among other things, on being able to sell energy for a sufficiently long period. The industrial business assumes an obligation affecting future financial years, during which its products, markets, technologies and plant locations may change. The former seeks demand on which it can rely; the latter seeks a cost component that it can plan. The contract connects these two needs but does not eliminate their possible divergence. The stability required for financing may reduce the flexibility that industrial operations will consider necessary in subsequent years.

This changes the nature of the corporate decision. Purchasing energy for the following month and committing a share of consumption for ten years require different capabilities. In the latter case, the business incorporates a view of its own future into the contract. It assumes that certain activities will continue, that a particular level of demand will remain identifiable, and that the organisation can sustain guarantees and payments even in adverse conditions. The legal assessment must therefore include the scope for independent decisions that remains after signature: which production decisions can still be taken, at what cost, and with what consequences for the procurement already contracted.

3. Plant bankability and sustainable procurement

The perspective becomes particularly revealing when the concept of bankability is considered. A firm purchase commitment supported by adequate security and effective remedies for default may reassure those financing the plant. For the buyer, the same rigidity constitutes an exposure to be assessed. The contract may transfer the cost of surpluses to the buyer, require it to maintain a bank guarantee for many years and provide for a substantial payment on early termination. It would be inaccurate to regard such clauses as defective merely because they are onerous. The issue is whether the burden has been identified, assessed and compensated for within the economics of the transaction.

The European Investment Bank’s pan-European programme supporting guarantees for corporate PPAs, approved on 19 June 2025, confirms the structural importance of credit risk. Dedicated financial instruments can facilitate access to agreements and support new investment. However, eligibility conditions, beneficiaries, covered exposures and those remaining with the parties require specific examination. Even where a guarantee is available, it remains necessary to understand which risk it covers and what cost the buyer bears to obtain it. The existence of protection supporting financing does not necessarily mean that the purchasing business’s balance sheet is protected.

4. Contractual subject matter, delivery profiles and price risk

Understanding this exposure requires starting with the actual subject matter of the agreement. In physical PPAs, delivery, any intermediary services, scheduling and imbalance management must be identified. In financial PPAs, settlement of differences against a reference price remains separate from the supply of energy required for consumption. The classification of the structure and any requirements under financial regulation need an independent assessment. The choice of index must also be compared with the cost actually borne by the business: a hedge referring to a different market or profile can leave substantial residual exposure.

The timing of performance is equally decisive. A pay-as-produced PPA, covering the energy actually generated, allocates a different exposure from a baseload agreement providing for a constant profile, or a shaped agreement designed around specified demand. Matching the annual total purchased with the annual total consumed provides useful information but may conceal a mismatch between the hours when energy is available and those when it is needed. A negotiated megawatt-hour has an economically relevant quantity, time and location. When one of these elements changes, the outcome of the hedge may also change.

An entirely hypothetical example makes the issue visible. A business consumes 10,000 MWh per year and purchases annual generation of the same 10,000 MWh under a PPA at EUR 70/MWh. Only 6,000 MWh coincide in time with consumption. The remaining 4,000 MWh are sold, on the assumptions used here, at an average of EUR 30/MWh; during hours of uncovered demand, the business purchases 4,000 MWh at an average of EUR 130/MWh. Payments under the PPA amount to EUR 700,000, supplementary purchases to EUR 520,000, and revenue from surplus sales to EUR 120,000. The net cost of the energy component is therefore EUR 1,100,000: EUR 110 for each of the 10,000 MWh consumed.

The contractual price has remained at EUR 70/MWh, and annual volumes match perfectly. It is the timing mismatch that produces the different result. The example assumes a structure allowing surpluses to be sold and missing volumes to be purchased; it excludes taxes, network tariffs, levies, commissions, balancing costs and other services. The figures are not a market forecast. They show why value must be assessed across the procurement arrangement as a whole, distinguishing the covered component from those that remain exposed. Comparing offers solely by the PPA price may mean comparing economically different forms of performance.

Clauses governing delivery profiles, surpluses and supplementary purchases therefore determine an essential part of the agreement’s value. The same applies to the possibility of negative prices. Whether the contract continues to require payment, permits generation to be suspended, or gives effect to quantities deemed to have been generated can materially change the outcome for the parties. It is necessary to establish who has the power to make the operational decision and who bears its consequences. One party may have to pay for the effects of a choice made by another in pursuit of its own interests.

5. Storage, flexibility and changing consumption

Integration with an energy storage system makes this relationship even clearer. A battery can reduce certain mismatches between generation and consumption but introduces further performance requirements: availability, usable capacity, losses, degradation and operating arrangements. Its physical presence in the project describes only the starting point. The buyer must know to what extent that capacity is committed to delivering the agreed profile, which competing uses are permitted and what obligations the operator bears. Storage may contribute to the plant’s overall profitability without being available, on the expected terms, to protect a particular business’s demand.

The contract must therefore coordinate the promise of flexibility with the powers needed to make it effective. If the operator can choose between scheduled delivery and other market opportunities, it is necessary to establish which commitments prevail and how any deviations are measured. Access to data also matters: verifying availability and performance requires information that the buyer may not directly control. Economic protection here depends on a precise organisation of information rights, checks and remedies. Technology offers a possibility; the contract determines the extent to which that possibility becomes an enforceable obligation.

There is a further aspect that, in my view, deserves greater attention: the relationship between a PPA and beneficial changes in the purchasing business. An energy efficiency measure may reduce consumption; a new technology may alter demand hours; a production reorganisation may move activities between plants. If the purchase commitment remains unchanged, an industrially and environmentally beneficial choice may generate surpluses or adjustment costs. The contract entered into to support the transition can therefore make a subsequent transition decision more expensive. This possibility must be considered in the initial assessment, alongside the economic value of the quantities purchased.

The 2026 European recommendation calls for consideration of combining PPAs with cost-effective efficiency and flexibility measures. In contractual terms, this guidance requires concrete implementation. The expected benefit of reducing consumption must be compared with the treatment of surpluses, the transferability of commitments and any scope for revising volumes. Flexibility can have a price and affect project bankability. For precisely this reason, it must be negotiated while alternatives remain available, without assuming that every future change can be resolved through renegotiation.

6. Permits, grid connection and the cost of time

The relationship with the physical ability to generate requires similar precision. When a PPA concerns a plant yet to be built, the buyer assumes exposure linked to project development. Land availability, permits, grid connection, network works and commissioning are separate steps. Their combination determines when energy can become available. The date stated in the contract expresses a commitment between the parties; achieving it may also depend on procedures and activities that those parties do not fully control. The initial assessment must identify that dependence and establish what economic consequences the contract attaches to it.

Administrative case law helps to explain the limits of preliminary classifications. In its judgment of 11 February 2026, No. 1099, Section IV of the Consiglio di Stato, addressing the rules on suitable areas applicable at the relevant time, reaffirmed the central importance of weighing interests in the procedure and giving reasons for the choices made. An area’s designation as suitable must be read within the framework of the provisions actually applicable and the stage reached in the permitting process. For those purchasing future energy, legislative support for renewables must therefore be translated into a project-specific examination of the relevant conditions and the measures already adopted.

Time has a significance of its own. In its plenary judgment of 23 April 2021, No. 7, the Consiglio di Stato examined damage caused by delay in authorising renewable plants and a subsequent change in the incentive regime. It placed liability for infringement of legitimate interests within the framework of non-contractual liability, requiring the conditions for damages to be established. In the case before it, it also clarified the use of loss-of-chance criteria, excluding any automatic equivalence between the damage and the entire expected profit. The precedent concerns the relationship with the public authority; the implication proposed here for PPAs concerns, on a separate level, the design of obligations between private parties.

The buyer needs energy during the delay as well and must be able to finance replacement procurement. Any damages claim against the public authority depends on conditions that must be proved, takes time to litigate and may not correspond to the exposure assumed under the PPA. The prospect of a public-law remedy therefore leaves the contractual problem of waiting unresolved. This difference should inform commencement conditions, reporting obligations, replacement supplies and the final date up to which the relationship can be maintained on the initially envisaged terms. Someone must bear the cost of time while that time is passing.

Grid connection also requires a distinction between planning and actual availability. Project documentation must be read alongside the activities still required, any works entrusted to other parties and the envisaged operating conditions. A PPA can allocate the consequences of a late or restricted connection between the contracting parties; its terms do not, by themselves, bind the network operator. This asymmetry creates a need for precise documentation and cooperation obligations, clearly determined consequences of delay and a distinction between events attributable to the producer and those outside its control.

The same need arises in relation to generation restrictions and any valuation of quantities not fed into the grid. A shutdown ordered for system requirements, plant unavailability and an operator’s economic choice arise from different circumstances. The contract must establish their effects on performance, payments and remedies, coordinating any compensation available elsewhere with the economic relationship between the parties. A general reference to external causes or force majeure may leave unresolved the very issue that becomes most important in a crisis: which event is covered by the clause and which risk, instead, was accepted under the agreement.

7. Incentives, legitimate expectations and regulatory risk

Allocating regulatory risk requires a different analysis again. In projects combining market revenues and public support, it is necessary to identify the source of each benefit, the conditions for its award and the requirements for retaining it. The price agreed under the PPA and remuneration arising from an incentive scheme may contribute to the same financial balance but remain subject to different rules. An agreement with GSE must be read together with the administrative decision and the legislation it implements. The term of the agreement, considered in isolation, does not complete the assessment of the benefit’s stability.

The Court of Justice addressed the relationship between support schemes and legitimate expectations in its judgment of 11 July 2019, Agrenergy and Fusignano Due, Joined Cases C-180/18, C-286/18 and C-287/18. In its subsequent judgment of 15 April 2021, Federazione nazionale delle imprese elettrotecniche ed elettroniche, ANIE, and Others, Joined Cases C-798/18 and C-799/18, it examined the reduction or deferral of incentives already provided for but not yet due, subject to the checks incumbent on the national court. These precedents require consideration of the rules and the foreseeability of their amendment. Protection of legitimate expectations must relate to the position actually acquired by the operator.

These judgments do not establish a general freedom to alter public commitments. Their relevance to the present subject lies in recalling the need for a precise assessment: which components of the financial plan depend on the market, which on an already accrued right, and which on the continuation of a regime or the fulfilment of a requirement. For a PPA, this analysis helps prevent the loss of one revenue component from being transferred to the other party through a clause whose conditions and effects have not been understood. The predictability of the public framework and the contractual allocation of changes to it are connected issues, with their own remedies and responsibilities.

The Consiglio di Stato provides a further methodological indication. In its plenary judgment of 11 September 2020, No. 18, it distinguished, under the Fourth Conto Energia scheme, the basic tariff from the premium linked to the origin of the modules, limiting the consequences of the breach relating to that condition to the premium concerned. The precedent requires identification of the benefit and the requirement to which the check relates; the rules applicable to GSE’s powers must, of course, be reconstructed in their chronological sequence. For those negotiating a PPA, this precision avoids treating every change in public remuneration as a single event capable of affecting the agreement’s balance indiscriminately.

A change in law, the loss of a requirement, an inaccurate representation and failure to perform an assumed obligation must therefore be distinguished. The first concerns allocation of a subsequent legislative development; the others may involve initial information, continuing compliance obligations, warranties and liability. A change-in-law clause encompassing all these situations without distinction could allocate to the buyer consequences attributable to the seller’s conduct. Conversely, a clause placing every change on the producer regardless of its scope could compromise the project’s sustainability. Legal assistance serves to make explicit the choice implemented by the contractual wording.

8. Guarantees of origin and evidence of environmental attributes

The environmental component of the transaction requires an independent assessment. Article 19 of Directive (EU) 2018/2001 gives guarantees of origin an evidential role towards the final customer and regulates the prevention of double counting. Energy transfers, allocation of the certificates and their cancellation must be coordinated with the use the buyer intends to make of them. The contract must enable verification of which attributes have been purchased, the quantities and periods to which they relate, and the remedies available if documentation is not provided. Environmental performance must also be demonstrable when the business is called upon to present it to its customers or financiers.

Entering into a PPA does not, by itself, establish correspondence between generation and consumption in every time interval, nor does it resolve every question concerning investment additionality. The documented attribute must be distinguished from any further characteristics that the business intends to claim. Here too, the issue is consistency between the promise incorporated into the decision and the rights actually acquired. The reputational value attributed to the agreement can become an exposure when environmental communications go beyond what the contract and documents can substantiate. Legal scrutiny must follow this relationship between procurement, evidence and external representations.

9. Duration, changed circumstances and contractual remedies

A long term brings the contract back to its most demanding private-law issue: the relationship between binding commitments and change. Francesco Macario’s scholarship on adjustment and renegotiation in long-term contracts provides a reference for locating this issue within the debate on the evolution of continuing contractual relationships. The issue is particularly acute in PPAs because the stability sought by one party depends on the other assuming certain variations. Duration makes the economic result possible while increasing the probability that performance conditions will depart from those known at signature.

A market price that has become less favourable than the agreed consideration does not, by itself, establish an abnormality in the relationship. Article 1467 of the Italian Civil Code requires extraordinary and unforeseeable events and excludes termination for hardship falling within the contract’s normal allocation of risk. Article 1469 also requires consideration of whether the contract is aleatory by law or by the parties’ intention. Classification must be based on the specific contractual structure. A contract consciously allocating the risk of certain fluctuations must be examined in light of that choice, without assuming that every economically significant exposure can be reopened when the market becomes unfavourable.

Fair dealing and good faith under Articles 1175 and 1375 of the Italian Civil Code retain their significance in performance. A claim to obtain a price revision or judicial adjustment nevertheless requires a legal basis and conditions that must be proved. Uncertainty concerning these remedies increases the value of agreed rules on changed circumstances: relevant events, thresholds, information to be exchanged, effects while discussions take place and a solution to any deadlock. Renegotiation can be organised as a contractual process capable of producing an outcome, rather than being left to the future willingness of the party that will then have the greater interest in preserving the original arrangement.

10. Liquidity, security and the cost of exit

Obligations affecting liquidity require further examination. A clearly quantified initial deposit and a top-up mechanism triggered by a change in creditworthiness produce different consequences. The same applies to security whose amount is linked to the contract’s economic value. It is necessary to know when additional resources can be required, under what criteria and within what time limits. The moment when the business becomes less financially robust may coincide with the moment when the relationship requires it to commit fresh liquidity. Energy risk is thus transmitted to the financial structure through a clause that, read in isolation, might appear merely ancillary.

The cost of exit must also be established before signature. Early termination may require valuation of future cash flows, replacement costs, security already called and further remedies. The formula used, the data, the person determining the amount and the time allowed to challenge it can have decisive effects. Two contracts with the same price and term can give the business economically very different exit options. Initial value must be assessed alongside the cost of decisions that may become necessary during the relationship to preserve continuity of production.

Counterparty vulnerability must be examined from the same perspective. The producer may rely on a special-purpose vehicle with limited resources; the buyer may belong to a group without every group company guaranteeing the obligation. The intermediary may perform essential services whose interruption would undermine the overall arrangement. Corporate structure, assets available for enforcement, security and replacement options must therefore be compared with the promised performance. A right recognised on paper acquires a different value depending on the party against whom it can be exercised and the time needed to obtain an effective remedy.

11. Informed decisions and directors’ liability

It is at this point that PPA negotiation meets the organisation of the business. Article 2086 of the Italian Civil Code requires a business operating in corporate or collective form to maintain arrangements appropriate to the nature and size of its activities. For joint-stock companies, the reform introduced by Legislative Decree No. 47 of 27 March 2026 separated, in Articles 2381-bis and 2381-ter of the Civil Code, the rules on delegated corporate bodies from those on information provided to the board, through which the duty to act on an informed basis is expressed. Legal form, delegations and special rules determine the actual allocation of powers. The significance of the energy contract must be assessed within this system of powers and responsibilities.

The Court of Cassation has clarified the relationship between managerial discretion and prior risk assessment. In its order of 24 January 2023, No. 2172, Section I recalled that non-reviewability of the merits of business choices is limited by reasonableness assessed ex ante, taking into account precautions, checks and information obtained beforehand, as well as assessment of the transaction’s risk margins. The principle concerns directors’ liability and must be applied according to its conditions. For a PPA, it offers a relevant interpretative criterion: the quality of the decision also depends on the information on which it could reasonably have been based when the commitment was made.

An unfavourable outcome under the agreement does not, by itself, establish liability. A business may legitimately choose to bear substantial risk, provided that the decision complies with the applicable duties and is assessed in its concrete circumstances. The issue deserving attention is the possible divergence between the risk presented to the competent body and that actually incorporated into the clauses. If the choice is presented as cost stabilisation while the contract leaves volumes, profile and security requirements exposed, the documentation must make that gap visible. Otherwise, approval may rest on an economically incomplete description of the commitment.

I therefore propose considering industrial modelling, financial analysis and the legal content of the relationship together. Consumption forecasts must correspond to the profiles purchased; adverse scenarios must be linked to payment obligations and security; commencement conditions must reflect the project’s status; remedies must be assessed alongside the counterparties’ assets and organisation. A report can be useful if it allows decision-makers to understand these connections. Its value depends on the quality and verifiability of the data, rather than the mere existence of a document. The applicable accounting treatment also requires discussion with the relevant advisers.

Governance of the relationship continues after signature. Those negotiating the contract, scheduling consumption, managing treasury and checking data may belong to different functions. The internal allocation of responsibilities must enable recognition of when a change becomes relevant to the obligations assumed. A change in industrial production may require a decision on surpluses; deterioration in the counterparty’s position may make calling security urgent; a project delay may require new purchases. The contract grants rights that the organisation must be able to exercise at the appropriate time.

12. Cross-border transactions and the manageability of risk

For an investor looking at Italy, the assessment must also encompass the relationship between the location of generation, market structure and the demand covered. Purchasing energy from an Italian plant and protecting consumption located elsewhere raises issues beyond those arising from a supply entirely within the same setting. Recommendation (EU) 2026/917 refers to risks relating to differentials between bidding zones and interconnector flows in cross-border agreements. The law chosen for the contract, the rules applicable to the project, currency where relevant and the operation of remedies must be considered together. The transaction’s international character broadens the variables requiring coordination.

Model contracts can offer a useful starting point. In its assessment of voluntary templates, ACER recognised the contribution of existing instruments to the functioning of the market. Standardisation reduces certain uncertainties and facilitates comparison; however, the choices left to the parties by the template and the features specific to each project remain. A market-recognised text can be completed through options producing very different exposures. Familiarity with the contractual structure must be accompanied by examination of its actual content, particularly where the buyer’s industrial information is less organised than that available to the producer and financiers.

This analysis yields the criterion of risk manageability that I propose placing at the centre of the assessment. The criterion operates at the level of contract design and the adequacy of the decision under the applicable duties; the agreement’s validity remains subject to its own conditions. A risk is understandable when information allows its mechanism to be grasped; it is sustainable when the business can absorb its consequences in the scenarios considered; it is manageable when powers, information, resources and remedies exist that permit intervention during the relationship. The absence of one of these elements can weaken the protection that the contract appears to offer.

Allocation must be designed with both parties in mind. Placing every variation on the producer may make the project difficult to finance; allocating exposures exceeding the buyer’s industrial and financial capacity may undermine the very continuity of payments on which the project relies. The agreement’s resilience depends on making this interdependence visible and translating it into workable clauses. Broader security cannot indefinitely replace the counterparty’s ability to perform. A contract intended to last must be capable of retaining a sustainable economic rationale for those required to perform it.

The PPA thus becomes a revealing vantage point on the transformation of energy law. Public policy promotes investment; freedom of contract allocates commitments; the corporate organisation must sustain them and adapt its decisions. The transition enters the business’s balance sheet through precise obligations that can continue to operate while technology, production and markets change. Legal assistance serves a coordinating function here: it makes the industrial promise, financial protection and actual content of the rights acquired capable of being assessed together.

The price of energy remains an essential component of the decision. The contract’s value is also measured by the business’s ability to preserve, during performance, the conditions for continuing to make decisions. When a ten-year commitment makes part of its costs predictable, it is necessary to understand how much of its future industrial autonomy has been used to obtain that result. In my view, this relationship between stability acquired and freedom committed will determine a significant part of the legal quality of PPAs and their practical usefulness for the energy transition.