A power purchase agreement, or PPA, is a long-term contract under which a buyer purchases the electricity produced by a specific installation, typically a solar park or a wind farm. It is not a statutory arrangement but a freely negotiated contract, and in the Netherlands it has become the main route to financing renewable projects outside the subsidy scheme.
Statutory basis
A PPA is governed by the general law of obligations in Book 6 of the Civil Code. The regulatory context is set by the Energiewet: the parties must arrange balancing responsibility, and where the buyer resells to small consumers a supply licence is required. Guarantees of origin are transferred separately under the renewable energy framework, because the physical electricity and the green attribute are legally distinct.
How it works in practice
Three structures are common. In a physical or sleeved PPA the electricity is delivered through a supplier who takes on balancing responsibility. In an on-site or private-wire PPA the installation sits on the buyer’s own site or roof. In a financial or virtual PPA there is no physical delivery at all: the parties settle the difference between the agreed price and the market price. Volume is usually pay-as-produced rather than a fixed baseload, which shifts profile risk to the buyer.
Where it goes wrong
The clauses that cause disputes are rarely the price. Negative price hours – increasingly frequent on sunny and windy days – raise the question of who bears the loss when production is curtailed or worth less than nothing. Curtailment by the grid operator, change in law, and the treatment of guarantees of origin on early termination need express provision. Credit support is a further weak point: a project company with no assets other than the installation offers little recourse, and lenders will require a direct agreement giving them step-in rights.
Related terms
Guarantee of origin, supply licence and grid congestion.
Are you negotiating or financing a PPA? Our energy lawyers draft and review the contract, including the direct agreement with the lenders.
