PPAs are typically subject to regulation at the state and federal level to varying degrees depending on the nature of the PPA and the extent to which the sale of electricity is regulated where the project is sited. PPAs facilitate the financing of distributed generation assets such as photovoltaic, microturbines, reciprocating engines, and fuel cells. FERC determines which facilities are applicable for PPAs under the Energy Policy Act of 2005. In the United States, PPAs are typically subject to regulation by the Federal Energy Regulatory Commission (FERC). In the UK, PPAs are regulated by the Department for Business, Energy & Industrial Strategy (BEIS).
Electricity traders may also enter into PPA with the Seller. In the case of distributed generation involving a commercial PPA variant, the buyer may be the occupant of the building-a business, school, or government for example. Under a PPA, the buyer is typically a utility or a company that purchases the electricity to meet its customers' needs. In most cases, the seller is organized as a special purpose entity whose main purpose is to facilitate non-recourse project financing. Under a PPA, the seller is the entity that owns the project. This approach facilitates the financing of distributed generation assets such as photovoltaic, micro-turbines, reciprocating engines, and fuel cells.
In the case of distributed generation (where the generator is located on a building site and energy is sold to the building occupant), commercial PPAs have evolved as a variant that enables businesses, schools, and governments to purchase electricity directly from the generator rather than from the utility.
The seller under the PPA is typically an independent power producer, or "IPP." not owned by a utility) electricity generating assets. Such agreements play a key role in the financing of independently owned (i.e. Ĭontractual terms of a PPA may last anywhere between 5 and 20 years, during which time the power purchaser buys energy, and sometimes also capacity and/or ancillary services, from the electricity generator. There are many forms of PPA in use today and they vary according to the needs of buyer, seller, and financing counter parties. A PPA is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance. The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination. Contract between two parties for the sale of electricityĪ power purchase agreement ( PPA), or electricity power agreement, is a contract between two parties, one which generates electricity (the seller) and one which is looking to purchase electricity (the buyer).
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