Power purchase agreement
Also called: PPA · Topic: Infrastructure: Transport, Communications and Energy · NCERT: Beyond NCERT
Meaning
A power purchase agreement (PPA) is a long-term contract between an electricity generator and a buyer. The buyer is usually a distribution company (discom). The contract fixes the tariff (price per unit) and the terms of supply. It gives the generator a steady income, which makes it easier to raise loans for the plant. The risk is that a discom can get stuck paying for capacity it no longer needs, and states may then try to renegotiate the contract.
Example
A solar developer wins a reverse auction at about ₹2.5 per kWh. In a reverse auction, the bidder offering the lowest price wins. The developer then signs a long-term PPA with a state discom at that tariff. If demand later falls, the discom must still pay the agreed charges.
Don't confuse with
- Concession agreement: this gives a private party the right to build or run a public asset, such as a road, and collect revenue from it. A PPA is simply a contract to sell power.
Related concepts
- Energy infrastructure
- Energy security
- Plant load factor
- Aggregate technical and commercial losses
- Cross-subsidy
- Open access (electricity)
- Time-of-day tariff
- Feed-in tariff
- Levelised cost of electricity
- Grid parity