Power Purchase Agreement (PPA)

A Power Purchase Agreement (PPA) is a contract between one party that generates electricity (seller) and a party (usually an electricity distribution utility) who purchases the electricity (buyer).  The terms and conditions (starting date, duration, price or payment arrangements, delivery point, and performance terms) are specified in the contract.  The contract (agreement) allocates the risk between buyer and seller for respective nonperformance.  It is an important determinant of the supplier’s ability to obtain finance for a generation project.