Power Purchase Agreement (PPA)

Power Purchase Agreement (PPA)

A Power Purchase Agreement (PPA) is a long-term electricity supply contract between an electricity producer (e.g. a PV system operator) and a customer (e.g. an industrial or commercial company). The customer purchases electricity directly from the producer — often under more stable and competitive conditions than electricity from the public grid.

How it works

Under a PPA, the customer agrees to purchase a defined amount of electricity at a contractually agreed price over a specified period, typically 10–20 years.

The electricity can be supplied in two main ways:

• On-site PPA: Electricity is generated directly at the customer’s location (e.g. a PV system installed on the company’s roof) and consumed locally.
• Off-site PPA: Electricity is generated at a remote renewable energy plant (e.g. a wind or solar farm) and delivered through the public grid.

PPAs provide stable revenues for producers and long-term electricity price certainty for customers, while also enabling access to renewable electricity independent of government subsidy schemes such as the EEG.

Typical applications

• Commercial and industrial companies with stable electricity demand
• On-site PPAs combined with PV systems and Battery Energy Storage Systems (BESS)
• Companies pursuing sustainability targets, such as CO₂ reduction through renewable electricity
• Businesses seeking long-term price stability for electricity procurement
• Alternative to volatile grid electricity prices and rising grid fees

Key figures

• Electricity price (ct/kWh): fixed or variable price defined in the contract
• Contract duration: typically 10–20 years
• All-in price: may include generation, operation, maintenance, and possibly storage services
• Contracted electricity volume: agreed annual or minimum supply quantity
• Buyout option: possibility to acquire the generation asset during or after the contract term

Summary

Power Purchase Agreements are a key procurement model for renewable electricity outside regulated subsidy systems. They offer price stability, long-term planning security, and improved CO₂ performance for companies.

For energy-intensive businesses, PPAs provide a strategic way to reduce exposure to electricity price volatility and transition toward sustainable energy supply.