A Power Purchase Agreement (PPA) is a long-term contract between an energy producer (seller) and an energy consumer (Buyer). PPA’s are a common type of agreement especially in the renewable energy sector. Energy law firms in India extensively deal with such agreements on a regular basis. PPAs enable energy producers to secure a return on their investments made in energy projects thus providing a financial framework to sell the energy produced at a pre-agreed amount.
Participants in a PPA are broadly divided into two categories: the “Buyer” and the “Seller”.
The Buyer in a PPA usually is either a utility company or a multinational/large corporation. These companies enter into a PPA to protect their financial or environmental rights or both.
- Financial: These entities agree to purchase a certain amount of power over a long-term period at a fixed price, therefore, mitigating the potential risk of cost uncertainty in future energy prices.
- Environmental: Companies usually decrease their carbon footprint by purchasing power from renewable sources thus demonstrating a commitment to sustainability. This can help them meet their corporate social responsibility (CSR) goals and improve their public image.
The Seller is typically an independent power producer (IPP) which can be a renewable energy project such as a wind farm or solar plant. Such a Seller agrees to supply a specified amount of power to the Buyer over the term of the contract known as PPA. Energy law firms in India deal with such PPAs.
The seller secures a reliable and long-term stream of revenue for the power it produces through a PPA. This certainty in revenue makes it easier for the IPP to secure financing for its projects.
These PPAs also stipulate the conditions under which the energy will be produced and sold, including aspects such as the delivery point, the quality of the power, the timeline for delivery and the penalties for non-compliance with the terms of the contract.