Growth in renewable generation has led to a new type of physical power contract: Power Purchase Agreements (PPAs). These long-term agreements provide a stable revenue stream for operators of wind and solar plants while ensuring a predictable return on...
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Growth in renewable generation has led to a new type of physical power contract: Power Purchase Agreements (PPAs). These long-term agreements provide a stable revenue stream for operators of wind and solar plants while ensuring a predictable return on investment for project financiers. PPAs are critical for project financing, as lenders typically require predictable revenue before funding energy infrastructure. At the same time, organizations can hedge against future electricity price volatility by locking in long-term rates. Many large corporations also use PPAs to procure renewable electricity and reduce their carbon footprint, such contracts are known as CPPAs.
PPAs are complex long-term contracts. Structurally, they function as framework agreements with either a fixed or indexed price and typically an as-produced volume profile, though baseload or shaped volumes are also possible. In addition, contractual provisions often allow sellers or buyers to fix or unfix volumes and price
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