A power project agreement (PPA) is a legal agreement between two parties whereby one (the power generator) agrees to sell electrical power to the other (the purchaser) for a predetermined period. These agreements are usually long-term and can range from 10 to 25 years, depending on the project`s size and scope.
PPAs are usually used in the renewable energy sector, where the power generator is typically a company that has installed a wind farm or a solar panel array. The purchaser may be a utility company, an industrial facility, or a municipality. The PPA ensures a stable source of revenue for the power generator and assures the purchaser that they will have a steady supply of electricity.
The PPA sets out the terms and conditions of the agreement, including:
1. The price of electricity: The price of electricity is usually set out in cents per kilowatt-hour (kWh) and remains fixed for the duration of the agreement.
2. The duration of the agreement: The length of the PPA is usually determined by the lifespan of the power project. This ensures that the generator has a guaranteed revenue stream and that the purchaser is assured of a stable source of energy.
3. The terms of payment: The PPA outlines how the purchaser will pay for the electricity they receive from the generator. Payments can be made monthly, quarterly or annually.
4. Delivery obligations: The PPA outlines the generator`s obligation to deliver electricity to the purchaser. This includes the amount of electricity that will be supplied and the time frame for delivery.
5. Penalties: The PPA may include penalties if either party breaches the agreement. This can include penalties for late payments, failure to deliver power, or other breaches of the agreement.
PPAs are an important part of the renewable energy industry and have helped to spur the development of wind and solar power projects around the world. They provide a stable revenue stream for power generators and assure purchasers of a stable and predictable energy supply. If you are involved in the renewable energy industry, it`s important to understand the terms and conditions of a PPA and how it can benefit your project.