Energy and natural resources
PPA (power purchase agreement)
A long-term contract to buy electricity from a generator at an agreed price.
Facts checked against sources onWhat does PPA (power purchase agreement) mean?
A power purchase agreement is a contract, often lasting 10 to 25 years, in which a buyer (a utility, a state offtaker or a large company) agrees to buy power from a generator at an agreed price. It gives the plant steady, predictable revenue, which lets it borrow cheaply to fund construction. Example: a 200 MW solar plant with a 25 percent capacity factor produces 200 x 8,760 x 0.25 = 438,000 MWh a year; under a PPA at 30 per MWh it earns about 13.1 million a year. Many Gulf and Indian solar projects are won through auctions for PPAs, where the lowest tariff wins. Corporate PPAs let companies such as data center operators buy clean power directly.
Where does it come up in case interview prep?
- How the power system works, and who makes money in itLesson in Power, utilities and renewables
- Power economics and operations: levelized cost, the merit order, storage and the gridLesson in Power, utilities and renewables
- Power players, trends 2024 to 2026, and how to crack the casesLesson in Power, utilities and renewables
- Data centres and AI compute: players, trends and casesLesson in Data centres, cloud and AI compute
Related terms
- Independent power producer (IPP)A private company that owns power plants and sells electricity to utilities or large buyers.
- LCOE (levelized cost of electricity)The average cost of each unit of electricity over a plant's life, including the cost of building it.
- Capacity factorA power plant's actual output as a share of what it could produce running at full power all the time.
- Cost of capital (WACC)The return a company must earn to satisfy its lenders and owners.
- Barrel of oil equivalent (boe)A unit that converts gas into barrels of oil by energy content, so oil and gas can be added together.
- Lifting costThe cost of producing oil or gas from wells that already exist, per barrel.
- Full-cycle breakevenThe oil price a project needs to cover all its costs, including building it, and earn its required return.
- Fiscal breakeven oil priceThe oil price a government needs to balance its budget.
Learn it in context
See PPA (power purchase agreement) at work in a lesson from Power, utilities and renewables, with checks as you go.
Spotted something wrong or out of date? Report a mistake. We check every report and correct the page.