Energy and natural resources
Independent power producer (IPP)
A private company that owns power plants and sells electricity to utilities or large buyers.
Last reviewedWhat does Independent power producer (IPP) mean?
An independent power producer builds, owns and runs power plants but is not the regulated utility that serves homes. It usually sells its output under long-term PPAs and funds each plant mostly with project debt. Examples include ACWA Power in Saudi Arabia, Masdar in the UAE, Adani Green and ReNew in India, and many others worldwide. In the Gulf, the model often takes the form of an IPP or IWPP (independent water and power project) tendered by the state. Example: an IPP builds a 500 MW plant for 400 million, borrows 70 percent (280 million) and puts in 120 million of equity. Its return depends on the PPA price, capacity factor, construction cost and interest rates.
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Related terms
- PPA (power purchase agreement)A long-term contract to buy electricity from a generator at an agreed price.
- IRR (internal rate of return)The discount rate at which NPV is exactly zero.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
- Public-private partnership (PPP)A long-term contract in which a private company builds, finances or runs public infrastructure or services.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.