Description

A power purchase agreement (PPA) is generally the primary contract between the public and private sector parties. These typically are a government agency and a private utility or independent power producer underpinning a power sector PPP. A PPA is an example of "third-party" ownership. The government agency becomes the sole client of the private energy company, but there is often a separate investor to act as the system owner or project sponsor.

Instrument category

Public-private partnerships (PPP)

Implementation status

Moderate - tried and tested

Enabling conditions and success factors

• Appropriate energy market regulation must be in place, including feed-in-tariffs (FITs).

Instrument benefits

• PPAs lock in long-term pricing for electricity, helping to manage the risk of volatile power markets.
• PPAs reduce investment costs associated with planning or operating renewable energy plants.

Challenges and risks to implementation

• There is a wide range of challenges in implementing and connecting independent power plants, such as solar and wind, including connecting fluctuating energy sources to the grid and deciding who should bear the costs of any curtailment (the act of reducing or restricting energy delivery from a generator to the electrical grid).

References

Case studies

Dam Nai Wind Farm enabled through Vietnam's Renewable Energy Power Purchase Agreement (PPA) Model