A Power Purchase Agreement (PPA) is a long-term contract in which an energy producer and a buyer agree to purchase electricity at a fixed price and over a defined period of time. PPAs promote investment in renewable energies.
A power purchase agreement (PPA) is a long-term contract between an electricity producer (e.g. an operator of a solar or wind power plant) and a buyer (e.g. an energy supply company or a large consumer). In this contract, the customer undertakes to purchase a certain amount of electrical energy at a fixed price over a fixed period of time.
Here are some key points about PPAs:
- Price certainty: the PPA provides price certainty for both the producer and the off-taker, as the price of the electricity is fixed for the duration of the contract.
- Term: PPAs often have long terms, which can be several years, allowing the producer to amortise the investment in the power generation plant.
- Financing: These contracts are often crucial for the financing of renewable energy projects as they provide investors with a predictable source of income.
- Market risk: The PPA reduces market risk for the generator as they have a guaranteed income regardless of fluctuations in electricity prices on the market.
- Flexibility: Some PPAs may include options to adjust volumes or prices to reflect changing market conditions.
PPAs are particularly common in the renewable energy sector as they help to secure financing for projects and promote the development of sustainable energy.
