Defining the Power Purchase Agreement
A Power Purchase Agreement (PPA) is a long-term contract between a power producer and a buyer. It defines the sale of electricity, including capacity, energy, and related services. The purpose of such an agreement is to allocate risks clearly, ensure a reliable supply, and provide financial certainty to both parties. Therefore, it is an essential document for energy projects and their financing.
Commercial and Financial Terms
A PPA contract sets the contract duration, milestones, and commercial operation date. It establishes the tariff structure, usually comprising capacity charges, energy charges, and adjustment mechanisms. Payment terms, billing cycles, and indexation provisions ensure accurate and fair compensation. By providing transparency, the PPA enables lenders and investors to support energy projects confidently.
Risk Allocation and Obligations
The agreement allocates risks between seller and buyer. The seller undertakes to construct, operate, and maintain the plant. The buyer commits to purchase electricity and maintain payment security. Provisions address force majeure, curtailment, and deemed energy. Change in law clauses safeguard the parties against regulatory or tax changes. These elements ensure bankability and long-term stability.
Legal and Protective Provisions
A Power Purchase Agreement (PPA) contains strong legal protections to maintain balance. Default and termination clauses protect both parties against non-performance. Confidentiality provisions preserve commercial data. Assignment and change of control terms regulate ownership changes. Governing law and arbitration clauses establish enforceability. Together, these provisions ensure that the PPA remains a reliable framework throughout its duration.
Some other similar issues:
- Build-Own-Operate Agreement (B.O.O)
- Build-Own-Operate-Transfer Agreement (B.O.O.T.)
- Build Operate Transfer Agreement (B.O.T)
References
has been added to your cart!
have been added to your cart!
