PPAs are contracts for the purchase of “long-term” energy that ensure the lenders or banks of a generation plant, to know since the beginning the profitability of their plant for the following years.
It is a very widespread tool in the United States, where companies that have entered into purchase contracts to ensure green energy are important companies like Apple and Facebook.
In reality, government incentives for photovoltaics can be compared to PPAs in which there is a public figure that guarantees the remuneration of the plant.
A tool for renewables
PPAs are considered interesting for the renewable energy sector (photovoltaic and wind) because for these plants the initial investment is higher than the operating costs (in a coal plant it is also the cost of the fuel in the years that influences the cost of energy).
Therefore, the investor has the need to see himself guaranteed the return of the investment in a multi-year contract.
In this type of contract (VPPA) the buyer does not purchase energy of a specific production site. It instead purchases a defined quantity at a fixed price and above all the renewable origin certification.
VPPAs are very flexible contractual structures and allow buyers to meet a large part of their sustainability goals with a relatively small number of contracts.
Furthermore, since VPPAs are purely financial transactions, they enable buyers to reach the renewable energy quota quickly and efficiently.