What a PPA actually is

A power purchase agreement is a long-term contract — typically 10–20 years — between an energy buyer and a renewable energy developer. The buyer agrees to purchase electricity (or financial settlement equivalent to electricity) at a fixed price for the term.

Two main structures matter:

• Physical PPA. Electricity is delivered to your meter (or to your supplier on your behalf). You take operational responsibility for handling the supply.
• Virtual PPA (VPPA). A financial contract — you pay or receive the difference between the contracted price and the market price for the contracted volume. Your physical supply doesn't change. Virtual PPAs are simpler operationally but require hedge accounting treatment.

Both deliver renewable energy credits (RECs) that count toward sustainability commitments. The difference is who handles the energy itself.

The buyer-fit framework

Three characteristics need to be true for a PPA to make sense. Missing any one of them usually means a different instrument is better suited.

1. Large, stable load

PPA economics require committing to a specific volume for the full contract term. If your load is small (under ~10 MW peak), you can't get good developer pricing — minimum project sizes are too large. If your load is variable (seasonal, growing, or facing potential consolidation), you risk paying for power you no longer need.

Sweet spot: 10+ MW of consistent, predictable load with stable forward operations.

2. Long-term planning horizon

A 15-year PPA outlasts most executive tenures and most strategic plans. Organizations comfortable making 15-year commitments typically have: long-term ownership (private equity exits don't matter; family businesses, foundations, and public-sector entities work well), or board-level conviction that sustainability commitments will outlast leadership changes.

Organizations that struggle: high-growth companies whose operations may shift dramatically, businesses with potential M&A activity, those with annual or biennial strategic replanning cycles.

3. Strategic sustainability mandate

PPAs are operationally complex and tie up balance-sheet capacity. The justification has to come from something more than cost optimization — typically a board-mandated ESG commitment, customer or investor pressure for visible additionality, or regulatory requirements specific to your industry.

"We want to be greener" rarely justifies a PPA. "We've committed publicly to RE100 with a 2030 deadline" usually does.

The alternatives most buyers should consider first

What can go wrong over 15 years

This is the part most buyers underestimate during the RFP enthusiasm.

Basis risk

The contracted node and your settlement node aren't the same point on the grid. The difference between them — basis — can swing significantly over 15 years. A PPA priced at a favorable node can become unfavorable as congestion patterns shift.

Developer financial stress

Project economics depend on tax credits, interconnection costs, and policy regimes that change. When those shift, developers bring renegotiation conversations to clients who thought their contracts were locked. The 15-year contract you signed is only as durable as the developer's underlying economics.

Operational fit drift

Your load profile in 2041 won't look like your load profile in 2026. New facilities, divested assets, electrification of operations — all change the relationship between the contracted volume and your actual consumption. Excess RECs can be sold, but at prevailing market prices, not the contracted rate.

Reporting framework evolution

RE100, GHG Protocol, SBTi, and emerging disclosure frameworks (ISSB, CDP) update their requirements regularly. A PPA structured to satisfy 2026 reporting may need additional documentation or instrument modification by 2030. Build flexibility into the contract upfront, or plan to renegotiate.