Power purchase agreement (PPA)

A long-term contract to buy a generator's output at an agreed price, and the instrument that lets a project be financed.

A power purchase agreement is a contract between a generator and a buyer setting price, volume and term for electricity, usually over ten to twenty years. Its commercial function is financing: a project with a creditworthy counterparty on a long contract can raise debt, and one without generally cannot, which makes the agreement the event that turns an announcement into a build.

The structures differ in ways that decide who carries which risk. A physical agreement delivers energy to the buyer; a financial one settles the difference against a market price and leaves the buyer exposed to the gap between where power is generated and where it is consumed. An agreement written against a variable resource also leaves the buyer exposed to shape - the hours the asset produces may not be the hours the buyer consumes, which is a firm power problem wearing a procurement label.

For anyone tracking demand, these contracts are the earliest reliable signal of committed load. They are frequently disclosed, they name an offtaker, and they precede equipment orders by years.

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