PPA (Power Purchase Agreement)

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.