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A power purchase agreement is a contract between two parties, one which generates electricity (the generator) and one which is looking to purchase electricity (the buyer). The PPA defines all of the commercial terms for the sale of electricity between the two parties, including when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination.
Three main types of PPA – Indirect, Direct and Virtual.
- Indirect Wire (via Grid) – an electricity supply contract where the buyer agrees to buy a specific amount of electricity from a generator (any source) supplied over the grid.
- Direct Wire (or Private Wire) – an electricity supply contract where the buyer is directly connected to the generator eg roof mounted solar energy, without the need for the electricity supplied to be transmitted over the grid. This is a behind the meter agreement avoiding the costs associated with grid supplied electricity making direct wire power significantly cheaper than grid / indirect wire power.
- Virtual – is a method to access electricity supply through financial instruments rather than with generators directly and would not apply to most power users.