Power Purchase Agreement
A Power Purchase Agreement (PPA) is a long-term electricity supply contract between two parties, typically between an electricity producer and a customer (electricity consumer or seller). The PPA specifies in detail all the terms of the activity related to electricity – the amount of electricity to be supplied, negotiated prices, accounting and penalties for non-compliance.
Due to the fact that it is a bilateral agreement, the PPA agreement may take various forms and be adapted to the needs of each party to the agreement. Electricity can be delivered physically or on balance. Due to their ability to reduce the risk related to market prices, PPAs are used in particular by large electricity consumers and in the case of planned, larger investments in the construction or further operation of power plants using renewable energy. Unlike in the US, electricity purchase contracts are not yet widespread in Europe.