What is a power purchase agreement (PPA)?
A power purchase agreement (PPA) is a long-term contract to buy the electricity from a specific generator, or the financial value of that electricity, at a price agreed in advance. In energy, PPA simply stands for power purchase agreement. In the UK, PPAs are how new solar and wind farms find a buyer for their output, how large companies lock in renewable power at a known price, and how businesses host solar on their own roofs with no capital outlay.
What is a PPA in energy?
A power purchase agreement (PPA) is a contract between a generator, the seller, and a buyer, the offtaker, to buy the generator's electricity or its value at an agreed price for a fixed term. The price is either a rate per kWh, fixed or rising by an agreed escalator, or a strike price settled against the market. This site's indicative bands put UK terms at 15–25 years for on-site deals and 10–15 years for off-site deals.
Key takeaways
- PPA stands for power purchase agreement: a long-term contract to buy a named generator's electricity, or its value, at a price fixed in advance.
- Two parties sit at the core, the generator that sells and the offtaker that buys. Sleeved off-site deals in Great Britain also need a licensed supplier.
- UK corporate PPAs come in three families: on-site (the array sits on your premises), sleeved (a supplier delivers a remote farm's output) and virtual (a financial contract for difference against the market).
- For a business with a suitable roof and steady daytime demand, an on-site solar PPA means no capital outlay: a provider funds and owns the array and sells you its output.
- A PPA is not a government CfD. Contracts for Difference are signed with the Low Carbon Contracts Company, not with an electricity buyer.
PPA meaning: what the three letters stand for
In energy, PPA means power purchase agreement. The term covers any long-term contract under which a buyer agrees to purchase electricity from a particular generating asset, or to settle its value, at a price agreed before the power is produced. The buyer is called the offtaker, the seller the generator, and the contract the PPA.
If you searched "PPA meaning" you may have met other uses of the same letters. In medicine, PPA is primary progressive aphasia. In planning, a planning performance agreement is a project timetable agreed between a developer and a local planning authority. In corporate finance, PPA can mean purchase price allocation after an acquisition. None of those are covered here: this page is about the electricity contract.
How a power purchase agreement works
Every PPA solves the same problem. A generator is expensive to build and cheap to run, so whoever builds it needs certainty that someone will buy the output for long enough to repay the investment. A PPA supplies that certainty. The generator commits to deliver electricity, or its value, and the offtaker commits to pay an agreed price for it over an agreed term.
- The generator is built or contracted. A developer or provider finances the asset, often through a single-purpose project company that owns it.
- The offtaker signs for the output. It agrees the price, the term, the volume basis and who keeps the renewable certificates.
- Lenders finance against the contract. Because the offtaker's payments are contracted, the project can borrow against them. This is why the offtaker's credit strength matters so much to the price.
- Power flows, or money settles. In a physical deal the electricity reaches the offtaker, over a private connection on site or through a licensed supplier off site. In a financial deal only a cash difference changes hands.
- Metering and invoicing run for the term. The offtaker pays for metered output, usually monthly, and the contract's end-of-term clause decides what happens to the asset afterwards.
For the provider's side of that bargain, where the capital comes from and why it lends against your payments, see how PPA financing works.
Who signs a PPA: the parties
| Party | What it does | Who it usually is |
|---|---|---|
| Generator (seller) | Owns and operates the asset, sells its output | A developer, independent power producer, investment fund, or the project company a rooftop PPA provider sets up |
| Offtaker (buyer) | Commits to buy the output, or its value, at the agreed price | A business, public body or, in route-to-market deals, an electricity supplier or trader |
| Licensed supplier | Delivers off-site power to the offtaker's meters and balances it | Only needed when the power crosses the public network to reach a business |
| Lenders and investors | Fund the generator on the strength of the contract | Banks and infrastructure or renewable energy funds |
The buyer's role, and the credit tests that come with it, are covered in what a PPA offtaker is.
The main types of PPA in the UK
PPAs are grouped by where the generator sits and whether electricity or only money changes hands. For a business buyer in Great Britain the realistic choices are these.
| Type | How it works | Who it suits |
|---|---|---|
| On-site PPA | The generator, usually rooftop or ground-mount solar, sits on your premises and supplies your buildings directly | Owner-occupiers with a suitable roof or land and daytime demand |
| Sleeved PPA | A licensed supplier takes a remote farm's output and delivers it to your meters for a fee | Large or multi-site buyers without a usable roof |
| Virtual PPA | A financial contract for difference against a market price; your existing supply contract stays as it is | Large corporates able to manage derivative accounting |
| Utility or route-to-market PPA | A generator sells its output to a supplier or trader, which sells it on | Generators rather than business buyers |
The on-site, sleeved and virtual routes are compared side by side in on-site vs off-site PPAs, and the full set of contract shapes is covered on PPA structures.
How PPA prices are set
A PPA price is agreed once and then follows a path set out in the contract. The main shapes are:
- Fixed. One price per kWh for the whole term. Easy to budget, but your saving shrinks if grid prices fall.
- Fixed with an escalator. A starting price that rises each year by a fixed percentage or by an inflation index. How escalators work explains why this clause decides most of the long-run cost.
- Strike price. In a virtual PPA the parties agree a strike price per MWh and settle the difference against a market reference price, paying one way or the other.
- Floors, caps and collars. Some market-linked deals limit how far the price can move in either direction.
This site's indicative 2026 bands are 8–22 p/kWh for on-site solar PPAs, 11–20 p/kWh for sleeved deals and £55–£75/MWh for a virtual PPA strike. For comparison, solar cleared the government's Allocation Round 7a at £65.23/MWh in 2024 prices.
The p/kWh and £/MWh bands are this site's indicative advisory ranges, not published market data. AR7a result: DESNZ — Contracts for Difference Allocation Round 7a results.
What a PPA contract covers
Whatever the type, a PPA answers the same questions. These are the clauses to read first.
| Clause | What it settles |
|---|---|
| Term | How long you are committed, and whether either side can extend |
| Price and escalation | The starting price and how it moves each year |
| Volume | Whether you buy everything generated, a fixed profile, or a share |
| Performance | What the generator guarantees about output and availability, and the remedy if it falls short |
| Certificates | Who keeps the renewable certificates (REGOs in Great Britain) and whether they are retired for you |
| Change in law | Who carries the cost if taxes, levies or rules change |
| Credit support | Guarantees, letters of credit or deposits required from the offtaker |
| Assignment | What happens if either party sells, moves or restructures |
| Termination and buy-out | When the contract can end early and what it costs |
| End of term | Whether the asset is removed, bought, or the contract extended |
Two of these trip up first-time buyers most often: the end-of-contract options, and the certificate clause, which decides whether you can call the power renewable at all.
PPAs and REGOs: what makes the power renewable on paper
Electricity is identical once it reaches the network, so renewable claims in Great Britain rest on certificates. Ofgem issues one Renewable Energy Guarantee of Origin, or REGO, for each megawatt-hour of eligible renewable output. A PPA can buy you the power and still leave the certificates with the generator, or with whoever it sells them to. If you want to report the electricity as renewable, the contract has to say that the REGOs are transferred and retired for you.
Our guide to REGO certificates explains who issues them, how suppliers use them and how to check that a claim is backed.
REGO issuance: Ofgem — Renewable Energy Guarantees of Origin. Verified 27 Sep 2026.
PPA vs CfD: not the same contract
The government's Contracts for Difference scheme looks similar to a virtual PPA, because both settle a difference between a strike price and a market price. They are different contracts.
| Power purchase agreement | Contract for Difference | |
|---|---|---|
| Who signs | A generator and a buyer, privately | A generator and the Low Carbon Contracts Company, after a government allocation round |
| Public support | None | Yes: the scheme is the government's main support mechanism for low carbon generation |
| Term | Whatever the parties agree | 20 years for solar and wind from Allocation Round 7 onwards; 15 years in earlier rounds |
| Can a business be the buyer? | Yes | No |
Sources: DESNZ — AR7 reforms, government response (July 2025); Low Carbon Contracts Company.
How the two interact, and why output already under a CfD cannot also be sold to you on a virtual PPA, is covered in PPA vs CfD.
Is a power purchase agreement worth it?
It depends on what you need the contract to do. A PPA is a trade: you give up flexibility in return for a known price and, on site, a system you did not have to pay for.
| In its favour | Against it |
|---|---|
| No capital outlay on an on-site deal: the provider funds, owns and maintains the system | A long commitment, usually 10–25 years, that has to outlast your occupation of the site |
| A known price for part of your electricity, protecting that share from market spikes | If grid prices fall, a fixed PPA price can end up above the market |
| A traceable renewable claim, if the REGOs are transferred and retired for you | Leaving early is possible but costs money, because the provider financed the asset against your payments |
| Operation and maintenance are the provider's job for the term | Off-site deals carry legal, balancing and credit costs that small buyers rarely recover |
The detailed case is in the pros and cons of a solar PPA, and if you are already in one, how to get out of a solar PPA early sets out the exit routes.
Solar PPAs for UK businesses
For most businesses that are not large energy buyers, the PPA on offer is an on-site solar deal. A provider designs, funds, installs and maintains an array on your roof, car park or land, and you buy the electricity your buildings use at the agreed rate. Units you use on site avoid the delivered grid price, including network charges, which is why on-site tariffs sit at the bottom of the bands above.
This site is about exactly that contract. Our overview of solar power purchase agreements covers how UK deals are structured and priced, the savings calculator gives a first estimate for your site, and the form below returns an indicative tariff.
The UK legal framework in brief
Three pieces of UK law shape how PPAs work here, and a buyer meets them indirectly rather than by name.
| Law | What it does | Why it matters to a PPA |
|---|---|---|
| Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, Class A | Lets a person who supplies only electricity it generates itself do so without a supply licence, up to 5 MW, of which no more than 2.5 MW goes to domestic consumers | The supply-licence exemption on-site generators commonly rely on, which is part of why on-site PPAs need no licensed supplier |
| Power Purchase Agreement Scheme Regulations 2014 | Created a backstop "to promote the availability to electricity generators of power purchase agreements". A generator holding a CfD or an investment contract that cannot find a buyer can obtain a backstop PPA of up to 12 months, at a discount to the market reference price, from a licensed supplier chosen by auction: the offtaker of last resort | Even a generator with a government CfD still has to sell its physical power. Ofgem reports that the backstop has never been used |
| Guarantees of Origin Regulations 2003 and Fuel Mix Disclosure Regulations 2005 | Create REGOs and require suppliers to disclose their fuel mix | Decide whether the power you buy under a PPA can be reported as renewable |
The government is also reviewing the market itself. The Department for Business and Trade and DESNZ ran a call for evidence on corporate power purchase agreements from 9 January to 6 March 2026, seeking views on how to develop and improve the corporate PPA market in Great Britain, and published its response on 7 July 2026.
Whether a particular on-site arrangement falls within the Class A exemption depends on its facts; take legal advice. OLR usage: Ofgem — Offtaker of Last Resort annual report, April 2024 to March 2025. Sources read 27 Sep 2026.
Sources for the figures on this page
| Figure on this page | Value | Source | Verified |
|---|---|---|---|
| REGO issuance | One certificate per MWh of eligible renewable output | Ofgem — REGO scheme | 27 Sep 2026 |
| CfD term | 20 years for solar and wind from Allocation Round 7; 15 years in earlier rounds | DESNZ — AR7 government response | 26 Sep 2026 |
| AR7a solar clearing price | £65.23/MWh (2024 prices) | DESNZ — AR7a results | 26 Sep 2026 |
| CfD counterparty | Low Carbon Contracts Company | LCCC | 27 Sep 2026 |
| Class A supply exemption | Own generation only; up to 5 MW, of which no more than 2.5 MW to domestic consumers | S.I. 2001/3270, Schedule 4 | 27 Sep 2026 |
| Offtaker of last resort | Backstop PPA of up to 12 months for CfD or investment-contract generators; never used | S.I. 2014/2511; Ofgem OLR annual report 2024/25 | 27 Sep 2026 |
| Corporate PPA call for evidence | Open 9 January to 6 March 2026; response published 7 July 2026 | DBT/DESNZ call for evidence | 27 Sep 2026 |
| Price and term bands | On-site 8–22 p/kWh, 15–25 years; sleeved 11–20 p/kWh and virtual £55–£75/MWh, 10–15 years | This site's indicative advisory bands | — |
Frequently asked questions
What is a power purchase agreement in simple terms?
It is a long-term deal to buy electricity from one particular generator at a price agreed in advance. The generator gets a guaranteed buyer, which lets it raise finance; the buyer gets a known price and, if the certificates are transferred, a renewable claim.
What does PPA stand for in energy?
PPA stands for power purchase agreement. The buyer under a PPA is called the offtaker and the seller is the generator.
What is the downside of a PPA?
The length of the commitment. Most business PPAs run 10–25 years, leaving early costs money, and a fixed price can end up above the market if grid prices fall. Off-site deals also carry legal and balancing costs that only large buyers recover.
Is a power purchase agreement worth it?
For a business that owns or will occupy its site for the full term and uses most of its power in daylight hours, an on-site solar PPA usually is: no capital outlay and a price below the delivered grid rate for the units it covers. For a short-lease tenant or a site with little daytime demand it usually is not.
How long does a power purchase agreement last?
This site's indicative bands are 15–25 years for on-site solar PPAs and 10–15 years for off-site deals. The term has to be long enough for the generator to recover the cost of the asset from the payments.
What is the difference between a PPA and a CfD?
A PPA is a private contract between a generator and a buyer. A Contract for Difference is the government's support scheme: generators win contracts in allocation rounds and sign them with the Low Carbon Contracts Company, and no business can be the buyer.
Do I get renewable certificates with a PPA?
Only if the contract says so. Ofgem issues REGOs for renewable output, and the PPA has to transfer them and have them retired for you before you can report the electricity as renewable.
What is an offtaker of last resort?
Under the Power Purchase Agreement Scheme Regulations 2014, it is the licensed supplier that signs a backstop PPA with an eligible generator, one holding a CfD or investment contract, that could not find a buyer for its output. The supplier is selected by auction. Ofgem reports that the scheme has never been used.
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