Power Purchase Agreements – How can cities make the most of them?

A power purchase agreement (PPA) is a contract used by a purchasing entity to procure electricity from a project developer. This contract specifies the volume and price of the energy purchased and the duration of the agreement. “Renewables PPAs” specifically procure electricity from renewable energy projects, such as wind and solar PV and are typically signed for durations between 5 and 20 years. By having visibility on future revenues, the developer can more easily finance the construction and operation of the generating facility while the purchasing entity can benefit from low and stable electricity prices, while progressing towards its environmental objectives. 

While these types of contracts are normally concluded between two  private companies, they have recently started to be used by municipalities as an instrument to foster renewable energy deployment at local level. Following the energy price crisis of 2022, the European Commission promotes PPAs and has made it possible for Member States to de-risk renewable PPAs, for example by setting up state-backed or private guarantee schemes.

This short briefing will provide municipalities with some initial knowledge on renewables PPAs and how to use them to progress with their climate and energy strategies.