15+ Different Types of Power Purchase Agreements (PPA)

You must have noticed the growing popularity of Power Purchase Agreements (PPAs) in renewable energy projects. People are opting for PPAs as a cost-effective sustainability practice. So, PPA is not an option anymore; it has become a wise solution to reduce the world’s carbon footprint. You may want to grab a random PPA right now. But wait. There are so many types of PPA agreement to overwhelm you while choosing your one. Different PPA types cater to sectors like industrial, commercial, institutional, residential, etc.

You need to choose from them according to your requirements. How? We are here to solve your problem. In this article, we will introduce you to the most popular types of PPA ruling the world of green energies. It will help you pick the right one. Let’s dive into it.

Types of Power Purchase Agreement According to Contract 

There are different types of Power Purchase Agreement (PPA). We have referred here the best 7 types of PPA that is crucial for different platforms as well. These types of PPAs are subdivided and it can be around 15+. So, let’s see them in details.

1. Direct PPA

Direct PPA allows the energy buyer company to contract directly with the provider. They use a sleeving arrangement to transfer energy to the customer. The producer prefers a proximity for easy supply arrangements. They also handle risk and the customer’s added energy needs. The buyer also gets the Renewable Energy Guarantee of Origin Certificate(REGOs).

2. Indirect PPA

An indirect solar PPA agreement works with no direct engagement between the energy seller and the buyer. Rather, the power supplier works as an intermediary between the seller and the buyer. They hold two separate contracts with them.

Then, it sells the electricity to the buyer through a standard power supply agreement. They simplify payment, contract management, grid balancing, and the administrative process. It also saves buyers and sellers from direct market participation. 

Types of PPA According to Contract Duration

1. Short-term PPA

A short-term Power Purchase Agreement is a one- to two-year contract between a producer and a buyer. It provides flexibility in a fluctuating electricity market. Both parties can immediately change or renegotiate agreements in reaction to price swings. Thus, it acts as a hedge against market volatility. Producers profit from increased revenue during peak pricing periods. Buyers can also avoid overpayment when prices fall. It helps reduce their investment risks.

2. Long-term PPA

A long-term PPA is a 10 to 25-year contract between large-scale providers and customers. It assures a consistent energy supply. For producers, it provides consistent revenue to improve bankability in favorable regulatory settings.

Buyers benefit from steady inflation-adjusted pricing. It helps with long-term financial planning and decreases exposure to market volatility. Furthermore, the guaranteed income pushes developers to build more green energy projects to reduce carbon emissions.

PPA Type According to Delivery Variations

1. Physical PPA

This type of PPA sells electricity directly to the customer. They incorporate the production into the electric supply arrangement through the grid. So, they install the system in the buyer’s property or their regional transmission network. This type of PPA is suitable in the regulated energy sector. The buyer can ensure direct energy supporting infrastructure here.

Thus, it provides a simple way for businesses to get renewable energy and incorporate it into their energy portfolio. It also offers the producer a guaranteed cash stream. Physical PPA has three major categories. They are: 

On-Site/Private Wire PPA

On-site or private wire PPA is the contract between a close-proximity customer and providers. Here, the electricity is produced and used at the same place. On-site systems are smaller (500 kW to 3 MW). This type of PPA is perfect for small-scale projects like rooftop solar.

The renewable energy plant is on or near the consumer’s property. It supplies electricity directly, bypassing the grid. This decreases grid congestion and saves the company a lot of money. 

Off-site PPA

Here, the seller company supplies the electricity using the public grid. Also, the solar company will not need a new solar power plant for the new agreement. Instead, they can use their existing plants according to the preferred location. Moreover, they use a single plant to cover several PPAs. So, there is no concern about infrastructure and location constraints.

The PPA can cover up to 50 to 400 megawatt capacity. So, buyers from large-scale projects such as ground-mounted solar systems or many huge wind turbines can choose it. However, the providers must balance the production, demand, price, grid charge, and security.

Sleeved PPA

A sleeved PPA is an agreement between the buyer and the developer on a power price. However, a third-party electricity supplier called the “sleeve” handles physical delivery. The buyer pays the developer for the electricity.

He also pays the electricity supplier a sleeving fee to facilitate delivery over the national grid.Also, the buyer purchases REGO certifications to certify renewable energy. The buyer must sign back-to-back agreements with the developer and the provider. 

2. Virtual/Synthetic PPA

Synthetic or Virtual PPA(VPPA) has no real energy supply. Rather, the buyer purchases the environmental attributes. The producer sells the electricity to a utility provider. He trades it in power markets. They do it often via platforms like the spot market. The financial settlements are made based on whether the market price is higher or lower than the agreed price.

If the market price exceeds the strike price, the developer pays the difference to the buyer, and vice versa. Thus, it is a flexible way to invest in clean energy. This PPA is suitable in regions with liquid electricity markets where physical delivery isn’t feasible. 

3. Block Delivery PPA

A Block Delivery PPA is a contract where electricity is purchased in fixed time blocks. So, it is very helpful for renewable projects with variable output. This PPA allows buyers to commit only to specific amounts of energy based on their needs. Thus, it ensures flexibility, cost savings, and predictable pricing.

It also includes Renewable Energy Certificates (RECs). This PPA helps buyers meet wider sustainability goals while managing budget and supply risks. For producers, it ensures a stable revenue stream. It helps support project financing and aligns with market demand. 

4. Baseload PPA

A Baseload (PPA) or firm PPA lets a company purchase a consistent, pre-defined volume of electricity at a fixed price. This contract can be valid annually, seasonally, or monthly. This PPA is fixed regardless of demand or generation fluctuations. Baseload PPAs ensure a constant energy supply, aligning with the buyer’s consumption.

Buyers can also tailor them into different delivery profiles to match specific load curves. This structure provides predictable and stable energy procurement. So, it can be particularly suitable for buyers with steady energy needs. 

5. Route-to-market or market-access PPA

The utilities or aggregators adopt Route-to-Market PPA or Market-Access PPA. Here, a renewable energy generator sells the electricity at prices linked to the wholesale market rates. The seller gets a variable payment instead of a fixed price for their output.

This payment reflects real-time market conditions, often with a slight discount. These PPAs are particularly useful for independent generators or smaller developers. They can overcome their lack of infrastructure or regulatory credentials to access power markets.

6. Pay-as-produced or as-generated PPA

A Pay-as-Produced (PaP) PPA or As-Generated PPA helps buyers buy the electricity a renewable energy facility generates. The production is measured in real time, every half hour in markets. The buyer has to pay a pre-agreed fixed price for all power generated, regardless of the facility’s output variability.

This price structure ensures the maximum revenue certainty for the producer. Because every unit of electricity produced is monetized at a known rate, it is an attractive model for securing project financing. For the buyer, it offers full traceability and supports strong sustainability credentials. However, they must manage intermittency and potential mismatches between production and demand. 

7. Portfolio Power Purchase Agreement 

You may want electricity from multiple solar power, wind power, and hydroelectric power. A portfolio PPA will let you avail the opportunity. A portfolio provider helps spread energy sourcing across multiple assets and regions. Thus, they save buyers from the project-specific risks. Portfolio PPA is also flexible in contract terms and pricing structures.

So, the buyers get a mixture of long-term and short-term, fixed and variable prices and procurement strategies according to their budget and sustainability plans. Companies wishing to scale up their renewable energy without managing it themselves. Thus, portfolio PPA will help to promote investment in a broader range of renewable energy initiatives.

Types of PPA Based on Pricing Structure

1. Fixed-Price PPA

In this type of PPA, the buyer will pay a predetermined, unchanging electricity rate (per kWh). The rate will be indexed independently of the volatile energy price index(EPI). The primary goal of this stable price is to save the buyer from market uncertainties. It helps in long-term budgeting and operational planning with more confidence. These contracts have two types:

A. Fully Fixed Contracts: It offers a bundle rate that covers electricity and other financial incentives.

B. Fixed Price with passthrough embedded benefits: The power price is fixed. However, the other benefits will be charged separately as a fixed percentage.

This type of PPA is perfect for large energy consumers like manufacturing facilities, public institutions, retail chains, etc. Additionally, smaller-scale producers or “prosumers” or companies prioritising cost certainty should choose this PPA.

2. Index-Based PPA

As the name suggests, this PPA provides full flexibility in the pricing structure based on the market situation. It is also known as flexible or variable PPA. So, the buyer and seller can benefit from market dynamics by securing a discount price compared to the market rates. Buyers can get long-term savings and profit during the high market periods. However, they should also be prepared for a price dip during the low market periods.

Index-based PPA suits bulky energy seller companies trading most of their energy. They can use the staged selling approach. This lets them break down their energy output into blocks to price them individually based on the favorable market conditions. Though flexible PPA provides noticeable savings and flexibility, fixed PPA is better for companies prioritizing budget certainty.

3. Bespoke PPA

Bespoke PPA balances budget certainty and market exposure. It combines fixed-price and flexible price structures. This PPA is negotiated between the provider, the off-taker, and sometimes a third-party portfolio manager. However, it is even more flexible to meet the commercial, technical, and operational needs of companies with complex, multisite requirements.

They can customize the PPA with a convenient pricing model and site-specific delivery structure. This PPA also ensures volume flexibility to change in output or consumption over time. Thus, it becomes the route-to-market solution for advance energy strategies. So, companies dealing with different load profiles can choose bespoke PPAs to keep them one step ahead.

PPA Types Based on Asset

1. Existing Asset PPA

This PPA applies to assets previously subsidized by the government that have been operational for many years. Here, the seller enters into a PPA with a corporation to secure stable profit. This type of PPA is cheaper and has a short duration of 3-7 years. However, operational risk is a concern in this type of PPA. 

2. New Asset PPA

Here, the buyer makes a fixed-price, fixed-term agreement to finance their assets. The acceptable ROI of the seller and the buyer is the basis of this PPA price. The buyer acts as an investor for a new renewable asset. However, this type of PPA can be more expensive and longer in duration.

PPA types based on Contractual Parties

1. Corporate PPA

Corporate Power Purchase Agreements (CPAs) are long-term contracts of 10 to 25 years between a company and a renewable energy source. The company agrees to buy a fixed amount of electricity at a fixed price during the term.

These agreements enable businesses to hedge against volatile electricity costs. They can support sustainability and ESG goals and contribute to decarbonization. Corporate PPAs can be physical or virtual. They also incorporate mechanisms for risk sharing and performance assurances.

2. Municipal PPA

This type of PPA is signed between a municipality, like a city council, local government, or public authority, and a renewable energy provider. The agreement terms and obligations are the same as those of the corporate PPA. This PPA aims to advance public sector sustainability.

Municipal PPAs are often structured to include transparency, risk mitigation, and community engagement components. They also often align with broader regional or national environmental policies and net-zero commitments.

3. Community PPA

This type of PPA allows governments to obtain green electricity for communities. It can include residents, companies, and public facilities. It helps the community receive cleaner, more sustainable power at competitive costs. This encourages the development of local or regional renewable energy projects. The community also get more control over their energy prices and environmental impact. 

4. Retail PPA

Retail PPAs are agreements made between a retailer and an energy generator. The retailer agrees to buy a set amount of electricity from the producer. The retailer then resells this electricity to customers through a fixed price or a structured contract.

These agreements are useful in deregulated energy markets. Here retailers can offer green energy options to their customers. They can market them as part of their green energy offering, while supporting the growth of renewable energy projects.

5. Utility PPA

Utility PPAs are contracts between a utility company and a renewable energy producer. The utility agrees to purchase electricity from the developer over a set period in these agreements. Usually, the energy price is set to give the producer financial stability and a steady flow of income.

For utilities, Utility PPAs help meet renewable energy targets, diversify their energy mix, and provide customers with a more sustainable energy supply. This arrangement benefits both parties by stabilizing energy costs and supporting long-term environmental goals.

6. Financing PPA

Financing PPAs are agreements between a financial institution and a renewable energy project developer. The financial institution provides the necessary financing for the development of the project. In return, the developer agrees to sell a specified amount of electricity to the financial institution once the project is operational. Financing PPAs provides financial institutions with a guaranteed ROI. These agreements help to secure the capital needed to build large-scale energy projects. 

Green Tariffs: An Alternative to PPA

Green tariffs are pricing schedules that utilities provide customers as an alternative to power purchase agreements with independent power providers. Green tariffs can assist clients in achieving their environmental goals while supporting the development of renewable energy projects. There are two types of Green Tariff Programs, they are: 

1. Green Tariff 1.0 

Green Tariff 1.0 refers to the purchase of renewable energy certificates (RECs) or offsets. It allows users to support renewable energy initiatives without actually using renewable electricity. They provide greater transparency and control to the client, and tariffs are commonly used in on-site renewable energy projects.

2. Green Tariff 2.0  

Green Tariff 2.0 (GT2) helps customers buy renewable energy from a utility or third party. Unlike project-specific tariffs, GT2 is not tied to a particular energy source or site. It makes it suitable for large-scale projects like utility-scale wind or solar farms. While it may be more cost-effective than GT1, GT2 offers less transparency and control for the customer.

Differences Between Sleeved PPA and Virtual PPA

Differences Between PPA and Prepaid PPA

Why Should I Choose PPAs?

PPA is a contract between the energy seller and buyer for buying the energy the system produces. But you may still hesitate to take the approach over the other options, like leasing or buying the system. Here is why PPA overshadows the other available options:

Long-term Price Stability

Using a PPA, you can fix or index your electricity cost for up to 25 years. The energy market’s unpredictability can never ensure this type of price stability. From this angle, PPA can make financial planning easier during market volatility.

Financial and Operational Risk Management

PPAs provide income certainty for sellers. They reduce the risk of price spikes and budget overruns. Additionally, many PPA structures spread risks across multiple buyers and projects. It minimizes exposure to single-buyer insolvency or contract disputes.

Avoiding Upfront Capital Investment

You can access renewable energy without the hassle of maintaining the system. Thus, they can meet green energy goals without upfront capital expenditure. This makes PPAs ideal for businesses with limited resources or real estate.

Achieving sustainability and Net Zero Targets

Many organizations are under increasing pressure to meet carbon reduction and climate goals. A PPA helps reduce Scope 2 emissions by sourcing power from renewable projects. So, you can achieve corporate Net Zero, ESG, or CSR credentials.

Facilitating Renewable Energy Projects

PPAs play a vital role in making renewable energy projects viable. They guarantee a consistent revenue stream for the energy producer. Thus, you can encourage the construction of new green energy infrastructure.

Access to Global Renewable Portfolios

Major energy providers offer access to vast portfolios of renewable projects. This gives you access to a reliable and diversified source of green electricity. It also ensures integrated supply, trading, and storage services.

How to Choose the Best PPA type According to My Needs?

1. Choose a Baseload PPA to guarantee a constant power supply if you need stable, predictable energy.
2. If your company’s electricity demand is variable, select a Block Delivery or Pay-as-Produced PPA.
3. If you need a direct physical energy supply, go for On-site or Off-site Physical PPA.
4. For simpler renewable credit solutions, choose virtual PPAs to get RECs.
5. If you need budget certainty, choose fixed-price PPAs with locked rates for 10-25 years of predictable costs.
6. If you want to capitalize on market opportunities, sign for index-based PPAs to get potential savings. 
7. When you want to claim strong sustainability, go for Physical PPAs for the most verifiable renewable energy usage.
8. If you want community-focused initiatives, choose community PPAs to ensure shared benefits.
9. If you want to test renewable strategies, choose short-term PPAs to get flexibility.
10. Pick bespoke PPAs to fully customize pricing and contract structures if you have complex needs.
11. If you want to get maximum long-term value, choose long-term PPAs.
12. When your space is limited, go for Off-site or Virtual PPAs require no physical installation.
13. If you want a hassle-free implementation, choose sleeved PPAs to let third parties handle everything.
14. If you want a comprehensive solution, combine multiple PPA types to get all the benefits.

Conclusion

The wide range of Power Purchase Agreements (PPAs) can meet your energy goals efficiently. Each of them has different requirements, upsides and downsides. Having an idea about them will help you to choose the best one in today’s volatile energy market. It will help you combine renewable energy production, financial, and environmental benefits. 

Your PPA must match the energy procurement strategy with their operational demands, risk appetite, and sustainability goals. By making the right energy choices and advocating for cleaner practices, you can all work toward a greener, more resilient future.

What are granular PPAs?

Granular PPAs are agreements that match power use with renewable energy generation on an hourly basis. So, the buyers do not have to worry about standard annual agreements. Traditional PPAs help buy and sell a set amount of electricity over a year, but they do not guarantee that the energy is always 100% renewable. Granular PPAs address this issue using digital tools to provide hourly Guarantees of Origin (GOs). This strategy increases transparency. 

What are the advantages of off-site PPAs?

Off-site PPAs offer businesses a flexible way to source renewable energy. These contracts give customers access to large-scale renewable projects. They do not need infrastructure investment or land ownership. It helps to make energy production more efficient and profitable.

What is a Utility Green Tariff Program?

Utility green tariffs are renewable energy programs of utility companies. They are approved by the state public utility commissioners (PUC). This type of PPA is perfect for larger commercial and industrial customers. 

How do I know if a PPA is profitable for me?

A fair PPA will align with market rates. It should also have transparent terms and less financial risk. To check whether a PPA offer is fair, compare its pricing to current utility rates and regional PPA benchmarks. Then, verify its fixed or escalating price structure. Also, check the contract terms such as length, termination penalties, and REC ownership. Lastly, confirm the developer’s financial stability. Look for hidden expenditures and secure performance guarantees.

Who are the largest buyers of corporate PPAs?

Amazon is the world’s largest corporate renewable energy buyer. The company has 8.8 GW of PPAs in 16 countries, 5.6 GW of which are solar PPAs.

Disclaimer

It’s very confusing to bring out the most effective PPA for you. Knowing the core types of PPA can help you choose your one. For your convenience, we have classified PPA types according to Contract type, contract duration, delivery variation, pricing structure, contractual parties and assets. You will also know about their similarities, differences, and how to identify the best deal for you. Regardless of whether you are a homeowner, a small businessman, or a large-scale project holder, this detailed article will provide you with enough information about the most effective PPA type you can avail in 2025 to 2030 or above.