Power purchase agreement

A power purchase agreement (PPA), or electricity power agreement, is a long-term contract between an electricity generator and a customer, usually a utility, government or company.[1][2] PPAs may last anywhere between 5 and 20 years, during which time the power purchaser buys energy at a pre-negotiated price. Such agreements play a key role in the financing of independently owned (i.e. not owned by a utility) electricity generators, especially producers of renewable energy like solar farms or wind farms.

PPAs contracts can either be for a pre-defined amount of electricity or for a pre-defined portion of whatever quantity of electricity the seller generates.[3] In either case, the price can be a fixed amount per kilowatt-hour or fluctuating market rates, depending on the specific terms of the contract.[4]

In the case of distributed generation (where the generator is located on a building site and energy is sold to the building occupant), commercial PPAs have evolved as a variant that enables businesses, schools, and governments to purchase electricity directly from the generator rather than from the utility. This approach facilitates the financing of distributed generation assets such as photovoltaic, micro-turbines, reciprocating engines, and fuel cells. More than 137 firms in 32 countries reported the signing of power purchase agreements in 2021.[5][6]

In Australia, onsite PPAs typically take the form of rooftop solar on commercial premises which is designed and built by a solar EPC who then manage and maintain the asset, selling the energy back to the business customer for the life of the agreement.

  1. ^ Albert Thumann, Eric A. Woodroof Energy Project Financing: Resources and Strategies for Success - 2009- Page 93 "WHAT IS A POWER PURCHASE AGREEMENT (PPA)? A power purchase agreement is a long-term agreement to buy power from a company that produces electricity. A third-party financier will provide the capital to build, operate, and ..."
  2. ^ D. R. Carmichael, Paul H. Rosenfield Accountants' Handbook, Special Industries and Special Topics 2003 Page 38 "The fact that an agreement is labeled a “power purchase agreement” is not conclusive. If a contract “conveys the right to use property, plant and equipment,” the contract should be accounted for as a lease. Other power purchase contracts.."
  3. ^ Brunnberg, Dirk; Johnsen, Joakim (2019). Purchase power agreements: a European outlook (PDF). Aquila Capital.
  4. ^ Commercial Power Purchase Agreements (PDF). Baringa Partners LLP. March 2022. p. 7. {{cite book}}: Unknown parameter |agency= ignored (help)
  5. ^ "Infrastructure Solutions: The power of purchase agreements". European Investment Bank. Retrieved 2022-09-01.
  6. ^ Murugiah, Surin (2022-02-04). "Corporations purchased record 31.1 gigawatts clean energy in 2021, says research firm". The Edge Markets. Retrieved 2022-09-01.