Power Purchase Agreements (PPAs) are a type of energy supply contract between two parties – one generating electricity (the generator) and one buying electricity (the purchaser). A PPA tends to cover details such as how much energy will be delivered by the generator to the purchaser, at what cost, for how long, what happens if a generator underdelivers energy, and payment and termination terms.¹
PPAs can be short-term or long-term depending on the involved parties’ needs. They can also include a fixed price over that timeframe or one that varies based on wider market trends. Long-term, fixed-price PPAs typically provide the most certainty and stability for both parties: for the generator, they provide a guaranteed revenue stream; for the purchaser, they provide a ‘hedge’ against fluctuations in the market.²
These agreements have been used widely by commercial, corporate and industrial users for many years, allowing them to purchase electricity directly from local generators at a set price. PPAs have become increasingly important for community energy organisations to sell their electricity.³ This is particularly prominent in projects which include solar on schools, hospitals and public sector buildings, which are typically based on PPAs between community energy generators and local authority or public sector organisations. For community energy, long-term PPAs (10-15+ years) can provide revenue certainty, supporting a more robust business case to secure investment against.²
¹ Crown Commercial Service, 2020. Introduction to Power Purchase Agreements
² Energy Community, 2024. Renewable Power Purchase Agreements in the Energy Community.
³ Energy Saving Trust, 2024. Barriers to community energy consultation response.
