(Updated April 2026) A Power Purchase Agreement (PPA) is a long-term electricity supply contract between a power producer and a company as the electricity purchaser. A fixed or structured price agreement for electricity from mostly renewable energy sources is made.
PPAs are considered one of the most important tools today for:
- predictable energy costs
- CO₂ Reduction
- Financing of new photovoltaic and wind projects
What is a PPA explained simply?
A PPA is a contract where:
- An energy generator produces electricity (e.g., from photovoltaics)
- a company purchases this electricity over several years
- the price is set or structured in advance
Typical runtimes: 10 to 20 years
Goal: Planning security for both sides
What types of PPAs are there? (Onsite vs. Offsite)
Besides a Corporate Power Purchase Agreement (CPPA), a sub-type of PPA where a direct contract is concluded between the producer and the off-taker, two PPA models are particularly relevant for companies:
Onsite PPA (On-site-generated electricity)
With on-site PPA, the electricity generated and consumed directly at the company site.
Examples:
- PV system on the warehouse roof
- Solar park or Solar carport on the company premises
Advantages of Onsite PPAs:
- maximum self-consumption
- lower electricity procurement costs
- No grid fees for self-generated electricity
- direct physical care
This is particularly suitable for industry and commerce with constant power requirements.
Offsite PPA (Offsite Power Purchase Agreement)
For offsite PPAs the electricity produced at another location and delivered.
Examples:
- Outdoor Solar Park
- Offshore wind farm
Benefits of offsite PPAs:
- Supply even without own land
- larger amounts of energy available
- flexible location choice
- Combination with origin certificates (HKN) possible
Important: Electricity is mostly virtual (balance sheet) delivered, not physically direct
What other PPA models are there?
In addition, a distinction is made between:
- Physical PPA physical power delivery
- Virtual PPA (vPPA) financial security via electricity market
- Sleeved PPA Integration of an energy supplier
Why are PPAs interesting for companies?
Plannable electricity costs
- long-term stable prices
- Protection against market price fluctuations
2. Reduction of energy costs
- often cheaper than traditional electricity purchase
- especially with high self-consumption
3. CO2 Reduction & ESG
- Direct connection to renewable energy
- relevant for:
- ESG reporting
- CSRD
- Climate goals
4. Independence from the energy market
- higher security of supply
- less reliance on energy providers
What are the benefits for operators and investors?
For plant operators and investors, PPAs offer:
- long-term secured income
- better project financing
- lower marketing risk
Result: PPAs are often Foundation for new solar or wind farms
How does a PPA work in practice?
A typical PPA includes:
- defined quantity of electricity or share of production
- fixed or variable electricity price
- clear runtime
- Regulations on:
- Delivery
- Default risks
- Guarantees of origin
Important: The pricing structure can be:
- fix
- indexed
- Hybrid
What role do origin certificates (HKN) play?
With offsite PPAs Guarantees of origin (HKN) often part of the contract:
- Proof of „green electricity“
- important for CO₂ accounting
- legally relevant for electricity labeling
Without HKN, the grid is in balance. not automatically „green“
PV-Contracting and PPAs in commercial applications
In the commercial sector, PPAs are often implemented as part of Contracting models:
- no personal investment necessary
- Planning, construction, and operation by service providers
- Electricity procurement via long-term contract
Typical advantages:
- no capital commitment
- immediate electricity cost savings
- calculable prices over 10-20 years
Depending on the model:
- no obligation to accept
- Flexible contract design
- Investment purchase option possible
A PPA is particularly worthwhile when:
A PPA is particularly useful when:
- high and predictable electricity consumption is present
- rising electricity prices are expected
- Sustainability goals are to be achieved
- No personal investments are desired
Conclusion: PPAs as a Key Model for the Energy Transition
Power Purchase Agreements are a key instrument for companies today to To stabilize electricity costs, reduce CO₂ emissions, and increase security of supply.
During Onsite PPAs especially convincing through direct self-consumption, enabling Offsite PPAs a flexible and scalable supply of renewable energy – even without your own land.
In combination with photovoltaics, Large battery storage systems and intelligent energy management, PPAs are increasingly becoming the Standard Model for Corporate Energy Supply.