Power Purchase Agreement

A Power Purchase Agreement is a long-term contract — typically ten to twenty-five years — between a generator and a buyer for the supply of electricity at a defined price or pricing formula. PPAs come in several structures:

• Physical PPA — the buyer takes physical delivery of the electricity, usually via a licensed supplier acting as the route-to-market.
• Sleeved PPA — a third-party supplier "sleeves" the PPA volume into the customer's normal supply, balancing the difference between PPA delivery and customer consumption.
• Virtual / synthetic PPA — a financial contract for difference referenced to a renewable asset, with no physical delivery; the customer continues to take grid supply via a normal contract.

For UK businesses, PPAs are the strongest structure for credible renewable claims because the customer's contract is directly tied to a specific asset and can be evidenced through the project's metered output. They are typically only appropriate above material annual volume thresholds — generally above 10 GWh per year — because the contracting effort and the credit profile required do not scale down economically.

For smaller customers, a bundled REGO-backed retail supply contract from a supplier that itself sources its volume through PPAs is usually the practical equivalent.