Understanding Power Purchase Agreements: A Buyer's Guide

What Is a Power Purchase Agreement?

A Power Purchase Agreement (PPA) is a long-term contract between an electricity buyer and a power generator. The buyer agrees to purchase energy at a pre-negotiated price, typically for 10 to 25 years. For commercial and industrial (C&I) companies, PPAs have become the primary vehicle for procuring renewable energy at scale.

Why C&I Buyers Are Turning to PPAs

The shift toward renewable energy procurement isn't just about sustainability — it's increasingly about economics. Here's what's driving adoption:

• Price certainty — Lock in energy costs for a decade or more, insulating your budget from wholesale market volatility
• Below-market rates — Many renewable PPAs now offer electricity at prices below grid alternatives
• Sustainability commitments — RECs generated through PPAs count toward Scope 2 emissions reductions
• Stakeholder expectations — Investors, employees, and customers increasingly expect corporate climate action

PPA vs. VPPA: Which Structure Fits?

Physical PPA — The buyer takes direct delivery of electricity. Best when buyer and project are in the same ISO region.

Virtual PPA (VPPA) — A financial contract where buyer and seller settle on the difference between a strike price and the wholesale market price. The buyer receives RECs but not physical electrons. Works across ISO boundaries.

Most first-time buyers start with a VPPA because it offers geographic flexibility.

Key Terms to Negotiate

• Strike price — The fixed $/MWh rate you'll pay. The most important number in the deal.
• Term length — Longer terms (15-20 years) typically secure lower prices but increase commitment.
• Settlement hub — For VPPAs, the reference price point matters for basis risk.
• Curtailment provisions — Who bears the risk if the grid operator curtails the project?
• Credit requirements — Investment-grade ratings unlock better terms.

Getting Started

The renewable energy PPA market moves fast. Start by understanding your load profile, your sustainability timeline, and your risk tolerance.

Star River Energy helps C&I buyers navigate this process from first call to contract execution. Register as a buyer to get matched with vetted sellers across US ISO markets.