What is a power purchase agreement?
A PPA is a long contract in which a buyer agrees to take electricity from a specific plant at an agreed price. Banks lend against it.
A power plant costs a lot before it earns anything. To borrow the money, the developer has to show lenders who will buy the electricity and at what price. The document that proves it is the power purchase agreement.
The buyer can be a utility, a government agency or a single company such as a mine or a data centre operator. Terms usually run from 10 to 25 years. The price can be fixed, indexed to inflation, or tied to a market reference with a floor.
A PPA signed with a creditworthy buyer is described as bankable, which means a lender will accept it as the main guarantee of repayment. That is why auction results are reported in dollars per megawatt-hour: the number in the PPA decides whether the plant gets built.
- Typical length
- 10 to 25 years
- Price unit
- Currency per megawatt-hour (MWh)
Explainers describe how things generally work. They are not advice for a specific project or country. See our editorial policy.