POWER PURCHASE AGREEMENTS
A Power Purchase Agreement (PPA) is a long-term contract between an electricity generator (seller) and a purchaser (buyer) for the purchase of energy at a pre-negotiated price. PPAs provide financial stability by securing predictable revenues for generators and predictable costs for buyers, which is essential for developing renewable energy projects. Key terms include negotiated prices, the amount of electricity to be supplied, and penalties for non-compliance, with the contract duration typically lasting 15 to 25 years.
How PPAs work
- Generator: Installs and operates an energy-generating asset, often renewable, on the customer’s property or a remote location.
- Buyer: Purchases the generated electricity from the generator at a predetermined price, which can be fixed or linked to market prices.
- Financial Security: The PPA guarantees a consistent revenue stream for the generator, which helps secure financing for the project. It also provides the buyer with budget certainty and protection from electricity price volatility.
Key benefits
- For Generators: Predictable revenue streams and a secure income source, making it easier to attract investment and obtain financing for new projects.
- For Buyers: Budget certainty, protection from fluctuating electricity market prices, and the opportunity to meet sustainability goals, as many PPAs include renewable energy certificates.
- For Renewable Energy: A crucial tool to support the growth of renewable energy by creating bankable revenue streams for rooftop and solar farms