--- title: Power Purchase Agreements and Industrial Decarbonisation description: When does a power purchase agreement cut real emissions, and when does it only improve your Scope 2 figure? The additionality test and what ESRS E1 asks for. image: https://www.fiegenbaum.solutions/hubfs/pexels-cluster-images/33676905.jpg --- [Skip to content](https://www.fiegenbaum.solutions/en/blog/power-purchase-agreements-csrd-compliance-sustainability#main-content) [![Fiegenbaum Solutions Logo](https://www.fiegenbaum.solutions/hubfs/Branding/Fiegenbaum-Solutions_Logo.svg) ![Fiegenbaum Solutions Logo](https://www.fiegenbaum.solutions/hubfs/Branding/Fiegenbaum-Solutions_Logo.svg)](https://www.fiegenbaum.solutions/en/?hsLang=en) - [English](https://www.fiegenbaum.solutions/en/blog/power-purchase-agreements-csrd-compliance-sustainability) - [Deutsch](https://www.fiegenbaum.solutions/blog/ppas-und-csrd-koennen-langfristige-energievertraege-erfuellen) - Services - [Climate Risk Assessment](https://www.fiegenbaum.solutions/en/climate-risk-analysis-for-companies) - [VSME Report](https://www.fiegenbaum.solutions/en/vsme-reporting-for-smes) - [ESG Due Diligence VCs & Series A+](https://www.fiegenbaum.solutions/en/esg-due-diligence-vcs-series-a-startups) - [Product Carbon Footprint](https://www.fiegenbaum.solutions/en/product-carbon-footprint-lifecycle-assessment) - [Corporate Carbon Footprint](https://www.fiegenbaum.solutions/en/company-carbon-footprint-methods-tools-best-practice) - Solutions - [Materiality Screening](https://www.fiegenbaum.solutions/en/double-materiality-analysis-definition-process-best-practice#fs-screening) - [Atlas](https://atlas.fiegenbaum.solutions/en) - [Load Profile Check](https://atlas.fiegenbaum.solutions/en/lastgang-check) - [Pricing](https://www.fiegenbaum.solutions/en/esg-climate-consulting-fixed-prices-carbon-footprint-vsme-due-diligence-climate-risk) - [About me](https://www.fiegenbaum.solutions/en/about-me) - [Blog](https://www.fiegenbaum.solutions/en/blog) - [Contact](https://www.fiegenbaum.solutions/en/contact) ###### 7 min read # PPAs and CSRD Compliance: Energy Strategy for Scope 2 Emissions By: [Johannes Fiegenbaum](https://www.fiegenbaum.solutions/en/blog/author/johannes-fiegenbaum) on 5/24/25, 5:04 PM · Last updated October 1, 2026 [Carbon Accounting & Scope 3](https://www.fiegenbaum.solutions/en/blog/tag/carbon-accounting-scope-3) [Energy & PPAs](https://www.fiegenbaum.solutions/en/blog/tag/energy-ppas) ![Factory building in front of green hills](https://www.fiegenbaum.solutions/hubfs/pexels-cluster-images/33676905.jpg) A power purchase agreement (PPA) is the most direct instrument an industrial buyer has for putting renewable energy behind its own load. It is also the easiest way to make a sustainability statement look better than the physical reality behind it. New to the instrument? Start with my [guide to corporate power purchase agreements](https://www.fiegenbaum.solutions/en/blog/power-purchase-agreements-ppas-sustainable-corporate-energy?hsLang=en) for market structures and pricing, then come back here for the decarbonisation angle. **Live data:** How gas, oil and carbon prices are moving right now, and which 2027 scenarios the IEA, ACER and ECB describe, is tracked in the [Fiegenbaum Atlas gas price dashboard](https://atlas.fiegenbaum.solutions/en/fossile-risiken). ## What a power purchase agreement is, and which models exist A power purchase agreement is a long-term supply contract between an electricity producer and a buyer that fixes volume, price and term, usually across ten to fifteen years. For the buyer it replaces wholesale price exposure with a known cost. For the producer it turns an unbuilt wind or solar farm into a bankable revenue stream; corporate demand for renewable energy is what finances new capacity. Four models dominate in Europe. They differ in who carries which risk and in how the contract reaches the sustainability statement. | Model | How the electricity flows | Where the price risk sits | Market-based Scope 2 effect | | --- | --- | --- | --- | | On-site PPA | Generated and consumed on site, no public grid | Fixed, no grid fees on the self-consumed share | The volume leaves purchased electricity entirely | | Physical off-site PPA | Through the public grid from a named plant | Fixed or collared, balancing stays with you | Claimed via the contract and its guarantees of origin | | Sleeved PPA | As above, a utility handles balancing and residual supply | Balancing passed to the utility for a fee | As physical, the utility documents delivered volumes | | Virtual PPA (CfD-style) | No delivery, a contract for difference settles against the market price | Market exposure remains, netted by the difference payment | Only via separately transferred guarantees of origin | A virtual power purchase agreement is a derivative and has to be measured as one. Settle the [IFRS treatment of power purchase agreements](https://www.fiegenbaum.solutions/en/blog/ifrs-impact-on-power-purchase-agreements-benefits-challenges-for-companies?hsLang=en) with your auditor before signing, not afterwards. ## Where a PPA actually cuts emissions, and where it only moves the reported number Market-based Scope 2 accounting lets you subtract the emissions of the electricity you contracted for. The physical grid does not notice the contract. Whether the two coincide comes down to three questions. **Additionality.** Does the agreement cause generation that would not otherwise exist? A fifteen-year offtake that lets a developer reach financial close is abatement. A short contract with an amortised plant already earning on the wholesale market moves certificates, not electrons. **Timing.** Annual matching nets a July solar surplus against a January evening with the gas fleet on the margin. Only hourly matching says anything about the emissions your load causes. **Grid location.** Certificates from a bidding zone your site is not connected to displace nothing where you draw power. For German sites, the [renewable share and installed wind and solar capacity](https://atlas.fiegenbaum.solutions/en/erneuerbare-energien?utm_source=fiegenbaum-solutions&utm_medium=blog&utm_campaign=atlas-erneuerbare-energien&utm_content=power-purchase-agreements-csrd-compliance-sustainability) are tracked in the Fiegenbaum Atlas. Compliance is not sustainability. A procurement decision taken to improve a disclosure will reliably improve the disclosure, and it will stop at the point where the number is good enough. That point sits well short of decarbonisation. The test I apply before recommending a contract: if it were never reported anywhere, would it still be worth signing? The second limit is scope. A German steelmaker signed a fifteen-year agreement in 2023 for 200 GWh of offshore wind a year. The contract is real and the wind farm is new, and it changes nothing about the blast furnace. Process emissions are Scope 1, process heat is gas and a [separately and increasingly priced problem](https://www.fiegenbaum.solutions/en/blog/eu-ets2-launch-2028-emissions-trading-buildings-transport?hsLang=en), and the purchased inputs are Scope 3. Electricity is the part of industrial decarbonisation a purchase agreement can solve, and it is rarely the largest part. ## How a PPA shows up in an ESRS E1 disclosure Three E1 datapoints move once a power purchase agreement starts delivering, and an auditor approaches each from the evidence side rather than the contract side. | ESRS E1 datapoint | What the agreement changes | What the auditor asks for | | --- | --- | --- | | E1-1 transition plan | The contracted volume becomes a named lever with a date | Contract term against the target year, and what follows it | | E1-5 energy consumption and mix | Raises the renewable share of purchased electricity | Metered delivery, not contracted nameplate capacity | | E1-6 gross Scope 2 | The market-based figure falls, the location-based figure does not | Guarantees of origin cancelled in the reporting year and market | The location-based figure is the honest one, and E1-6 requires both. The gap between them is the size of the claim your market-based number is making. Across more than 1,000 European sustainability reports from 2024 and 2025 that I analysed, 67 percent carry complete Scope 1, 2 and 3 data and 14 percent publish no extractable Scope figures at all. Volumes are the recurring weak point. Report metered delivery against contracted volume, name the plant and its commissioning year, and state in which market the guarantees of origin were cancelled. Data as of September 2026. ## From assessment to signed contract: the decision sequence The order matters more than the individual steps, because each one narrows the model choice. - **Hourly load profile for a full year.** The annual total says nothing about matching, and the profile is the first document a producer asks for. - **Credit standing.** The developer's lender prices your covenant across the full term. Below investment grade the route runs through a sleeve or a parent guarantee. - **Site horizon.** Ten years is a long commitment for a site whose future you would not defend for five. - **Coverage.** Anything close to full coverage buys volume risk you have to sell back. - **Model choice.** It follows from the points above, never from a preference formed before them. - **Monitoring.** Metered volumes, cancelled guarantees of origin and settlement payments, booked monthly. Reconstructing a delivery year in March is where the audit trail breaks. A [shadow carbon price](https://www.fiegenbaum.solutions/en/blog/internal-co2-pricing-strategic-tool?hsLang=en) makes the result comparable against the abatement options further down your list. Where the sequence works, it produces contracts like the ten-year agreement a German copper and brass processor signed in 2024 for around 46 GWh of solar power a year from a new 46 MW park in Brandenburg: a new plant, a defined volume, a term that outlives the reporting cycle. Companies that cannot sign a PPA of that size often start with [on-site solar and battery storage](https://www.fiegenbaum.solutions/en/blog/solar-energy-battery-storage-investments-2025?hsLang=en). ## Frequently asked questions What is the difference between a physical and a virtual (financial) power purchase agreement? A physical agreement delivers electricity, on your own site or through the grid from a named plant. A virtual agreement delivers nothing: you buy power as before, settle the difference between contract and market price with the producer, and receive the guarantees of origin separately. Only the physical route changes who supplies you. How is a power purchase agreement treated in accounting and in the sustainability statement? Two separate questions. In the accounts, a physical agreement is normally an own-use supply contract, a virtual one a financial derivative measured as such. In the sustainability statement neither the classification nor the price matters: what counts is metered volume and the guarantees of origin cancelled in the reporting year. Does a power purchase agreement make electricity consumption climate neutral? No. It lowers the market-based Scope 2 figure, and if the plant is new and sits in the grid you draw from, it lowers real emissions too. It leaves the location-based figure, your Scope 1 fuels and your Scope 3 untouched. Climate neutrality is a claim about all of them. Next step Turn climate risk or ESG data into a decision? In a 30-minute intro call we map where your biggest lever is, with no obligation. [Book an intro call](https://www.fiegenbaum.solutions/en/contact?hsLang=en) ![Johannes Fiegenbaum](https://www.fiegenbaum.solutions/hubfs/Johannes_07-modified.png) ### Johannes Fiegenbaum ESG and sustainability consultant based in Hamburg, specialised in VSME reporting, carbon accounting and climate risk analysis. Works with mid-sized companies, investors and financial institutions, and built the VSME reporting software VSEasy. [More about](https://www.fiegenbaum.solutions/en/about-me?hsLang=en) Related articles ## You may also like ### [ClimateTech Startups Green SaaS: Building Lightweight Climate Tools with APIs and AI A green SaaS tool is a small piece of software that answers one climate question with live environmental data, and nothing else. Most sustainability software fails because it asks ... 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A virtual agreement delivers nothing: you buy power as before, settle the difference between contract and market price with the producer, and receive the guarantees of origin separately. Only the physical route changes who supplies you." }, "name" : "What is the difference between a physical and a virtual (financial) power purchase agreement?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "Two separate questions. In the accounts, a physical agreement is normally an own-use supply contract, a virtual one a financial derivative measured as such. In the sustainability statement neither the classification nor the price matters: what counts is metered volume and the guarantees of origin cancelled in the reporting year." }, "name" : "How is a power purchase agreement treated in accounting and in the sustainability statement?" }, { "@type" : "Question", "acceptedAnswer" : { "@type" : "Answer", "text" : "No. It lowers the market-based Scope 2 figure, and if the plant is new and sits in the grid you draw from, it lowers real emissions too. It leaves the location-based figure, your Scope 1 fuels and your Scope 3 untouched. Climate neutrality is a claim about all of them." }, "name" : "Does a power purchase agreement make electricity consumption climate neutral?" } ] } ```