What Are Power Purchase Agreements (PPAs) and Why Are They So Popular?

Power Purchase Agreements (PPAs) play a crucial role in the GB energy market, providing a reliable route to market for electricity generators, particularly renewable energy projects.

In simple terms, a Power Purchase Agreement, sometimes called an offtake agreement, is a contract between an electricity generator and a licensed electricity supplier. Under a PPA, the supplier agrees to purchase electricity directly from the generator, rather than the generator selling its output through wholesale electricity markets.

How Do Power Purchase Agreements Work?

A PPA sets out the commercial terms under which electricity is bought and sold. These agreements typically cover:

• Electricity pricing structures
• Network and balancing charges
• Imbalance cost allocation
• Metering arrangements
• Renewable certification (e.g. REGOs)

These elements make PPAs more than just a price agreement, they are comprehensive frameworks that govern how electricity is transferred from generator to supplier.

The Importance of PPAs in the GB Electricity Market

The PPA market in Great Britain is both mature and highly active:

• Over 30 licensed suppliers offer PPA services
• Around two-thirds of renewable generation capacity sells output via PPAs
• Close to one-third of all GB electricity sales are linked to PPA arrangements

This highlights the central role PPAs play in enabling renewable energy projects to operate and scale.

Why Are PPAs So Popular?

The popularity of PPAs in GB is largely driven by regulatory requirements and commercial advantages. Under GB electricity market rules, only Ofgem-licensed entities can export electricity onto the transmission and distribution networks. Many generators, especially smaller renewable projects, are small enough (in nameplate capacity terms) to not need a licence. Avoiding a licence reduces compliance costs and technical complexity, but it means they must partner with a licensed supplier to sell their electricity.

Electricity suppliers actively participate in PPA markets for several reasons:

• Portfolio diversification: Access to additional electricity sources for customer supply
• Renewable procurement: Many PPAs include Renewable Energy Guarantees of Origin (REGOs), helping suppliers meet sustainability targets
• Customer demand: Increasing demand for low-carbon electricity products

For generators, PPAs provide:

• A guaranteed buyer for their electricity
• Revenue certainty, which is critical for financing new projects
• Long-term contracts (often up to 15 years) that reduce investment risk

Types of Power Purchase Agreements

The PPA market has evolved, with several variants emerging to meet different commercial needs.

Corporate PPAs (CPPAs) have grown significantly in recent years.

Under a CPPA:

• A generator and supplier enter into a standard PPA
• A business customer (corporate buyer) also participates
• The supplier “sleeves” electricity through the network to the customer

Why businesses choose CPPAs:

• Demonstrate sustainability and ESG commitments
• Secure long-term renewable electricity supply
• Potential to protect against wholesale price volatility

CPPAs are particularly attractive to large organisations seeking to decarbonise operations while managing energy costs.

A Virtual PPA (VPPA) is a more flexible, financial-based arrangement.

Unlike CPPAs:

• The corporate does not physically receive electricity from the generator
• Instead, both parties enter a contract for difference (CfD)-style agreement

How it works:

• If wholesale prices rise above the agreed price, the generator pays the corporate
• If prices fall below the agreed price, the corporate pays the generator

Benefits:

• Price stability for corporate buyers
• Revenue certainty for generators
• No need for physical electricity delivery

Although less common than CPPAs in GB, VPPAs are gaining traction, especially among multinational organisations.

Why Understanding PPAs Matters

As the GB energy system continues to decarbonise, PPAs are becoming increasingly important. They:

• Enable renewable energy deployment
• Support corporate sustainability strategies
• Provide financial stability in volatile energy markets

For developers, suppliers, and corporate energy buyers alike, understanding PPA structures is essential to navigating the evolving electricity market..

Taking the Next Step: Deepen Your Knowledge of PPAs

If you’re looking to develop a more detailed understanding of Power Purchase Agreements in Great Britain, structured learning can be highly valuable.

Cornwall Insight’s CPD-accredited Power Purchase Agreements – Structures, Markets & Pricing course provides a comprehensive overview of:

• GB market context and regulatory framework
• Common PPA structures and contract terms
• Pricing mechanisms and risk allocation

Delivered online by industry experts in two focused sessions, the course is regularly updated to reflect changes in the GB energy market.

The next live course delivery date is:

8 – 9 September 2026 | 10am – 12pm

For more information about this course please contact Tom Davidson, Head of Learning Solutions, at: t.davidson@cornwall-insight.com