A PPA makes sense when your organization has large, stable load (10+ MW), a long-term planning horizon, and a strategic sustainability mandate. But PPAs are overused. Many mid-sized buyers with variable loads and shorter planning cycles are better served by flexible retail procurement combined with renewable energy certificates (RECs).
What is a PPA?
A Power Purchase Agreement (PPA) is a 10–20 year contract to buy electricity from a renewable energy project at a set price. Physical PPAs deliver actual power; virtual (financial) PPAs settle the difference between the agreed price and the wholesale market price, with the buyer receiving RECs.
Costs People Underestimate
- Basis risk: If the PPA settlement node differs from your load zone, prices can diverge and the hedge becomes imperfect.
- Shape risk: Wind and solar generate when conditions allow, not when you use power. The mismatch settles at market prices.
- Legal and advisory costs: Transaction costs of $50K–$150K are common for mid-market PPA deals.
- Accounting complexity : VPPAs may require mark-to-market accounting under ASC 815/842, introducing earnings volatility.
Alternatives for Mid-Market Buyers
- Retail green products: supplier bundles RECs into a standard contract. Simpler, shorter commitment.
- Unbundled RECs: purchase certificates separately from supply. Most flexible, weaker additionality claim.
- Community solar: subscribe to a local project and receive bill credits. No long-term lock-in.
Bottom Line
PPAs are powerful for organizations that fit the profile. But before signing a 15-year commitment, evaluate whether simpler, more flexible approaches meet your sustainability goals without the complexity and risk.
Frequently Asked Questions
What is a power purchase agreement (PPA)?
A PPA is a long-term contract (10–20 years) to buy electricity from a renewable energy project at a set price. Physical PPAs deliver power; virtual PPAs are financial contracts where you also receive renewable energy certificates.
How big does my load need to be for a PPA?
Most developers require 5–10 MW minimum, with many preferring 20+ MW. Below that, retail green products, community solar, or unbundled RECs are more practical.
What is basis risk in a PPA?
Basis risk is the financial exposure when the PPA settlement location differs from your load location. If market prices at the two locations diverge, the hedge is imperfect.
Where Pilot Energy Fits In
Evaluating whether a Power Purchase Agreement (PPA) makes sense requires more than comparing energy prices. Businesses need to consider operational goals, budget certainty, sustainability targets, risk tolerance, and long-term market conditions, all while navigating a complex and evolving energy landscape.
That’s where Pilot Energy adds value.
Our team works with businesses to assess whether a PPA aligns with their broader energy strategy and financial objectives. We help you understand the structure of different PPA options, evaluate supplier proposals, model potential cost impacts, and identify opportunities to reduce exposure to energy market volatility.
For some organizations, a PPA can provide long-term price stability and support ESG initiatives. For others, more flexible procurement strategies may deliver better results. Pilot helps you cut through the complexity so you can make informed decisions with confidence.
Considering a Power Purchase Agreement?
Pilot Energy can help you determine whether a PPA is the right fit for your business goals and energy strategy.
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About Pilot Energy
Pilot is an energy advisory and procurement partner helping businesses manage rising energy costs with confidence and clarity. Founded in 2001, we provide independent, data-driven strategies for energy procurement, energy risk management, utility cost reduction, and long-term commercial energy savings.
We work closely with finance, operations, and sustainability teams to create custom energy roadmaps, aligning energy procurement, forecasting, and carbon reduction goals. With a blend of market expertise and digital platforms, we help you reduce volatility, improve budget predictability, and plan smarter in any market.
Schedule a complementary energy assessment and a no-cost utility bill review with Pilot Energy today and start building a smarter energy strategy.
