What Is a Power Purchase Agreement?
- PPAs are generally used when one company produces power but does not distribute it. This means that another company--which may produce power or may only distribute it--needs to be involved to sell the power to customers. It is the equivalent of an auto factory making cars and selling them to a dealer, who sells them to people.
- Highly regulated utilities do not use PPAs, as they are controlled by a state-owned monopoly. Therefore, PPAs are acceptable only in regions where power is either lightly regulated or unregulated.
- The major benefit of a large company using a PPA is that the company does not have to produce the power itself. Power generation is extremely expensive; this is why most people do not have generators in their houses and instead buy their power from a power company. By agreeing to buy power at a certain rate for a certain amount of time, a company can keep its costs fixed and avoid having to spend a large amount of money to build its own generator.