Question

Write a note on power purchase Agreement.

Answer 1

Power purchase agreements (PPAs) are used for power projects where:

the projected revenues of the project would otherwise be uncertain and so some guarantee as to quantities purchased and price paid are required to make the project viable;
there is a possibility of competition from cheaper or subsidized domestic or international competition (e.g., where a neighboring power plant is producing cheaper power) - the PPA provides some certainty of being protected from such competition;
there is one or a few major customers that will be taking the bulk of the product. For example, a government utility may be purchasing the power generated by a power plant. The government will want to understand how much it will be paying for its power and that it has the first call on that power. The project company will want certainty of revenue; and,
the purchaser wishes to secure security of supply.

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