Power purchase agreement (PPA)

A power purchase agreement sets out who buys a generator’s output, over what period, at what price and in what shape. In GB, corporate and utility PPAs commonly run over tenors of three to ten years or more, across technologies such as offshore wind, onshore wind and solar PV.

For the generator, a PPA converts uncertain merchant revenue into contracted cash flow, which is often what makes a project financeable. For the buyer, it provides price certainty on long-dated power and — where renewable certificates are transferred with it — a basis for renewable supply claims.

The main structural choices are the delivery profile (pay-as-produced, shaped or baseload) and the delivery mechanism (a physical sleeved structure, or a financially settled virtual structure).