PPA (power purchase agreement)

What does PPA (power purchase agreement) mean?

A power purchase agreement is a contract, often lasting 10 to 25 years, in which a buyer (a utility, a state offtaker or a large company) agrees to buy power from a generator at an agreed price. It gives the plant steady, predictable revenue, which lets it borrow cheaply to fund construction. Example: a 200 MW solar plant with a 25 percent capacity factor produces 200 x 8,760 x 0.25 = 438,000 MWh a year; under a PPA at 30 per MWh it earns about 13.1 million a year. Many Gulf and Indian solar projects are won through auctions for PPAs, where the lowest tariff wins. Corporate PPAs let companies such as data center operators buy clean power directly.