PPA (Power Purchase Agreement)
A Power Purchase Agreement is a 5–20 year bilateral contract between a renewable generator and a corporate or utility offtaker. The buyer locks in a fixed or indexed power price; the seller secures the long-term revenue needed to finance the project. PPAs were the funding instrument behind most of Europe's renewable build-out from 2020 onwards.
A Power Purchase Agreement (PPA) is a 5–20 year bilateral contract between a renewable generator and a corporate or utility offtaker. The buyer locks in a fixed or indexed power price; the seller secures the long-term revenue needed to finance the project. PPAs were the funding instrument behind most of Europe's renewable build-out from 2020 onwards.
Why PPAs exist
Banks won't lend €100M against a wind farm that earns whatever spot prices happen to be. They want a predictable revenue floor — typically 60–80% of expected production at a fixed price — to underwrite the debt. The PPA provides that floor. The remaining production is sold on the merchant market (Nord Pool day-ahead, intraday, balancing) at whatever the going rate is.
Three structures
Physical PPAs deliver real megawatt-hours from the generator to the buyer's meter via a balance group transfer; the buyer must be (or be represented by) a BRP. Virtual PPAs (vPPAs) are pure financial swaps — the generator continues selling spot, the buyer continues buying spot, and the contract settles the difference. Sleeved PPAs use a utility intermediary to handle the balance management on the buyer's behalf.
Estonian context
Corporate PPA volumes in Estonia have grown from near-zero in 2020 to several hundred GWh per year by 2025, dominated by the major renewable developers — Eesti Energia (Enefit Green), Sunly, Utilitas Wind, Eleon, and Saare Wind Energy. The buyer side is Estonian and Nordic industrials — IT services, paper, retail. PPAs are typically 5–15 years and reference Nord Pool EE day-ahead prices either as a fixed escalator or as an indexed strike. For investor-grade renewables, a signed PPA is a precondition for project financing; without it, the project does not get built. See also day-ahead market for the underlying spot reference.