- A power purchase agreement (PPA) is a contract between two parties,
- one who generates electricity for the purpose (the seller) and one who is looking to purchase electricity (the buyer).
- It is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance.
- It defines all 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.