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 Producer (IPP): Non-utility entities that generate electricity for sale to utilities or end-users.
Example: A corporation enters into a 20-year PPA with a solar energy company to purchase electricity at a fixed rate, supporting the company’s sustainability goals and providing cost predictability.
Visited 1 times, 1 visit(s) today
Synonyms:
Electricity Purchase Agreement, Energy Offtake Agreement
« Back to Previous Page« Back to Glossary Index
