Concepts
Power Purchase Agreement
Also Known As PPA
Commercial Mechanism
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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.
Facts
Concept Domain Formulated YearMarks the US Public Utility Regulatory Policies Act of 1978 (PURPA), which first required utilities to purchase power from qualifying facilities at avoided cost, establishing the legal basis for the standardized power purchase contract. Ad hoc utility power purchases predate PURPA; 1978 marks the modern PPA as a standardized legal instrument. Cross-Tradition Connections
Sources
1. Wikipedia
Wikimedia FoundationIntroductionQuote, Introduction
A power purchase agreement (PPA), or electricity power agreement, is a long-term contract between an electricity generator and a customer, usually a utility, government or company.
1. Wikipedia
Wikimedia FoundationFinancingQuote, Financing
defines the revenue terms for the project and credit quality
1. Wikipedia
Wikimedia FoundationPay-as-produced and baseload PPAsQuote, Pay-as-produced and baseload PPAs
The seller assumes responsibility for meeting delivery commitments, which may involve using energy storage or supplementary sources.
2. EBSCO Research Starters
EBSCO Information ServicesPublic Utility Regulatory Policies Act of 1978 (PURPA), EnactmentQuote, Public Utility Regulatory Policies Act of 1978 (PURPA), Enactment
the Public Utility Regulatory Policies Act (PURPA) was enacted in 1978
Frequently Asked Questions
What law created the modern power purchase agreement?
The US Public Utility Regulatory Policies Act of 1978 (PURPA).
The US Public Utility Regulatory Policies Act of 1978 (PURPA), passed after the 1970s oil shocks to encourage cogeneration and small renewable power producers. PURPA required electric utilities to interconnect with and purchase electricity from qualifying facilities at the utility's own avoided cost, which is what turned ad hoc utility power purchases into a standardized, legally required contract instrument, the shape the modern power purchase agreement still follows.
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