Power Purchase Agreement

A power purchase agreement is a long term contract, typically five to twenty years, between an electricity generator and a buyer, usually a utility, government body or company, setting the price and terms under which the buyer takes the generator's output. Pricing may be flat, may escalate on a schedule, or may be negotiated in any other way the two parties agree, and the contract's revenue terms are often what allows a generator to secure non recourse project financing in the first place. A pay as produced agreement has the buyer take whatever electricity the plant generates as it is generated, while a baseload agreement puts the obligation to meet a steady delivery commitment on the seller, who may need storage or a supplementary source to do it. Corporate buyers have become major users of these contracts for renewable power: more than 137 companies across 32 countries reported signing one in 2021 alone.