The essentials
- A Power Purchase Agreement is a contract between multiple parties, one who generates electricity for the purpose of sale (the seller) and one who is looking to purchase electricity (the buyer).
- The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination.
- A PPA is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance.
- There are many forms of PPA in use today. PPA’s vary according to the needs of buyer, seller, and financing counterparties.
- PPA’s have grown popular because the installation, operation, and maintenance costs associated with rooftop solar systems can be overly expensive for individual property owners.