Written by • March 3, 2025• 7:04 AM•

Power Purchase Agreement (PPA)

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Definition:
A long-term contract between an electricity generator and a buyer outlining terms for energy sales, commonly used in renewable energy projects.

Key Components:

  • Fixed Pricing Structures: Ensures long-term price stability for electricity.
  • Contract Length: Typically 10–25 years.
  • Offtake Commitments: Buyer agrees to purchase a set amount of energy.
  • Financial & Risk Allocation: Defines responsibility for transmission, maintenance, and other costs.

Use Cases/Industries:

  • Solar & Wind Farms: Securing funding through guaranteed energy sales.
  • Corporate Sustainability Initiatives: Companies locking in renewable energy sources.
  • Public Utilities: Purchasing renewable energy for distribution to customers.

Advantages:

  • Enables Renewable Energy Development: Provides project financing security.
  • Stabilizes Energy Costs: Protects against market volatility.

Challenges:

  • Long-Term Commitment: May limit flexibility if market conditions change.
  • Regulatory & Legal Complexities: Requires extensive contract negotiations.

Related Terms:
Virtual PPA, Green Power Agreement, Energy Offtake Contract

Example:
A global tech company signed a 20-year PPA to power its data centers with 100% wind energy.

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Synonyms:
Renewable Energy Contract, Offtake Agreement, Corporate PPA
Alternative Meanings:
  • Power Purchase Agreement (PPA)

    Definition: A contractual agreement between a power producer and a buyer, typically a utility or large energy consumer, outlining the terms for the sale of electricity generated by a specific facility over a set period.​

    Key Components:

    • Contract Duration: Specifies the length of time the agreement is in effect, often ranging from 10 to 25 years.​
    • Pricing Structure: Details the agreed-upon price per unit of electricity, which can be fixed, escalating, or indexed to market rates.​
    • Delivery Obligations: Defines the quantity of electricity to be supplied and the delivery schedule.​
    • Termination Clauses: Outlines conditions under which the agreement can be terminated by either party.​

    Use Cases/Industries:

    • Renewable Energy Projects: Solar and wind farms securing long-term revenue streams.​
    • Commercial & Industrial Sectors: Businesses procuring stable energy supplies at predictable costs.​
    • Utilities: Sourcing additional power to meet customer demand without building new generation facilities.​

    Advantages:

    • Financial Certainty: Provides predictable revenue for power producers and stable energy costs for buyers.​
    • Risk Mitigation: Allocates specific risks between parties, such as price fluctuations and operational performance.​
    • Support for Renewable Energy: Facilitates the development of clean energy projects by securing long-term buyers.​

    Challenges:

    • Contract Complexity: Negotiating terms can be intricate and time-consuming.​
    • Market Changes: Long-term agreements may not account for future market or regulatory shifts.​
    • Credit Risk: Dependence on the financial stability of the counterparty over the contract term.​

    Related Terms:

    • Feed-in Tariff (FiT): Policy mechanism offering fixed payments to renewable energy producers for the electricity they generate.​
    • Net Metering: Allows consumers to offset their electricity costs by generating their own power, feeding excess back to the grid.​
    • Independent Power...
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