A power purchase agreement (PPA) is a legal contract between two parties, typically a power generator and a power purchaser. This agreement provides a framework for the sale and purchase of energy generated from renewable sources, such as wind, solar, and hydroelectric sources. The PPA is an essential instrument to facilitate investments in renewable energy, which are critical to reducing greenhouse gas emissions and combatting climate change.
New Zealand has shown a commitment to establishing a sustainable energy mix that is reliable, secure, and affordable. The country has set a goal of generating 100% of its electricity from renewable sources by 2035, which requires attracting investments in renewable energy projects. The PPA is an effective mechanism to encourage investors to develop renewable energy projects in New Zealand.
The PPA is a long-term commitment between the generator and purchaser, typically ranging from 15 to 25 years. The generator agrees to supply power to the purchaser at a fixed price, while the purchaser agrees to buy the power at that price over the duration of the contract. The fixed price provides certainty to the generator, ensuring a return on investment, while the purchaser can secure a reliable and steady supply of power at a stable price.
PPAs are particularly attractive to commercial and industrial entities seeking to source renewable energy. These entities can purchase power directly from a renewable energy generator, which provides them with a reliable and cost-effective source of power. Additionally, the PPA can help achieve corporate social responsibility goals by reducing carbon emissions from power consumption.
New Zealand has seen a significant increase in the adoption of PPAs in recent years as renewable energy projects become more competitive with traditional energy sources. In 2019, the country`s largest PPA was signed between Genesis Energy and Tilt Renewables for the purchase of power from Tilt`s proposed 133 MW wind farm in South Taranaki. The PPA is a critical component of the wind farm`s financing, providing the necessary revenue certainty to secure investment and construction.
In conclusion, the PPA is an essential instrument to facilitate investments in renewable energy projects. It provides certainty to the generator, ensuring a return on investment, while providing the purchaser with a reliable and cost-effective source of power. As New Zealand continues its transition to a sustainable energy mix, PPAs will play a vital role in attracting investment and reducing carbon emissions from power consumption.