Development: Energy off-take and power purchase agreements
Power purchase agreements (PPA) are one of the most instrumental and sought after milestones in a renewable energy project’s development. This agreement makes or breaks the viability of a project; the financial difference between the value of a project with or without a PPA is paramount. A PPA is a binding contract between an electric utility and a project developer. In a solar PPA the utility commits to buy renewable electric power from the developer’s solar generator over a long period of time, typically between 20-25 years. In the United States, these PPA contract prices are generally submitted on a competitive basis. They may either come in the form of a fixed price contract for the length of the PPA or with a yearly escalator over the contract duration. We will see that a PPA can have many varying negotiable terms and conditions, but its most important function is to define the cash flow for an energy project. It does not matter if the energy project is a renewable or conventional energy type, PPAs and other similar cash flow arrangements are critical to a project.