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A power purchase agreement, or PPA, is a long-term contract to buy electricity from a specific project at an agreed price. For a solar, wind or storage developer, it is usually the single most important document in the financing. Lenders size the debt on the revenue the PPA guarantees.
This short guide explains the main types of PPA, the terms that matter most to lenders, and how to negotiate a contract that supports the financing you need rather than one that limits it.
A PPA is an agreement between a power generator, the seller, and a buyer, the offtaker, for the sale of electricity over a fixed period, often 10 to 25 years. The offtaker may be a utility, a government agency or a corporate buyer such as a manufacturer or a data center operator. Most renewable PPAs also transfer the project's environmental attributes, such as renewable energy certificates in the US or guarantees of origin in Europe.
For the developer, a PPA turns an uncertain future power price into a predictable stream of revenue. That predictability is what allows a project to raise long-term, non-recourse project finance debt.
Corporate buyers have become a major source of offtake. According to BloombergNEF's February 2026 report, corporations signed 55.9 GW of clean energy PPAs globally in 2025, down 10% from the 2024 record and the first decline in nearly a decade. The US still set a record at 29.5 GW, and Meta, Amazon, Google and Microsoft together accounted for 49% of global activity. For developers, that means strong demand from large technology buyers, but a smaller and more concentrated pool of corporate offtakers.
| Type | How it works |
|---|---|
| Utility PPA | A utility buys the power, often after a competitive procurement. Common for utility-scale projects and usually the most familiar structure for lenders. |
| Physical corporate PPA | The corporate buyer takes delivery of the electricity, either directly through an on-site or private-wire connection or via the grid. |
| Sleeved PPA | A utility or supplier sits in the middle, taking the project's power and delivering it to the corporate buyer, for a fee. Common in Europe. |
| Virtual or financial PPA | A contract for differences. The project sells power into the market, and the buyer and seller settle the difference between the market price and the agreed strike price. The buyer receives the environmental attributes. |
| Tolling or capacity agreement | Used mainly for battery storage. The offtaker pays for the right to use the asset's capacity, rather than for energy produced. |
Tenor. The length of the contract. Lenders generally want the PPA to run at least as long as the loan, and the debt is often sized only on the contracted years.
Price structure. A fixed price, a fixed price with an annual escalator, or an indexed price with a floor or collar. Fixed and floored prices support more debt than prices that move with the market.
Volume and shape. Under a pay-as-produced PPA, the buyer takes whatever the project generates. Under a baseload or shaped PPA, the seller must deliver fixed volumes and buy any shortfall in the market, which adds risk lenders will test closely.
Delivery point and basis risk. If the PPA settles at a different location from where the project sells its power, price differences between the two points, known as basis risk, fall on whoever the contract assigns them to.
Curtailment. Who bears the loss when the grid operator or the buyer limits output. Uncompensated curtailment reduces the revenue lenders can count on.
Credit support and termination. Letters of credit, parent guarantees or payment guarantees from the offtaker, and the termination payment owed if either side defaults. These decide what happens to the project's revenue if the buyer gets into trouble.
Change in law and assignment. Who absorbs the cost of new regulations, and whether the seller can assign the PPA to its lenders as security, typically through a direct agreement with the offtaker.
A PPA can be signed and still not be bankable. Common problems include a tenor much shorter than the loan, an offtaker without a credit rating or support, termination rights that let the buyer walk away cheaply, and no right to assign the contract to lenders. Have the draft reviewed from a lender's perspective before you sign it, not after.
Lenders read a PPA as a credit document. They focus on the offtaker's creditworthiness, the share of the project's output that is contracted, the contracted price against the project's costs, and how much of the risk on volume, shape, basis and curtailment stays with the project. From that, they calculate the cash flow available for debt service and size the loan to meet their minimum debt service coverage ratio, usually supported by a debt service reserve account.
Where the offtaker's credit is weaker than lenders want, credit enhancement such as a bank guarantee, standby letter of credit or insurance can bridge the gap. For more on combining PPA revenue with debt and tax equity, see our page on utility-scale solar project financing.
Financely is a debt advisory and arranging firm. We don't lend. We review your PPA and project contracts from a lender's point of view, structure the financing around the contracted revenue, and arrange it with lenders from our network of more than 12,700 verified capital providers. See our solar project capital raising service.
Tell us about your project and offtake contract and we will send you an estimate showing the scope of work and the fee to structure and arrange the financing. You decide whether to proceed once you have seen it.
A long-term contract in which a buyer agrees to purchase electricity, and usually the environmental attributes, from a specific generating project at an agreed price for a fixed period.
Under a physical PPA, the buyer takes delivery of the electricity. Under a virtual PPA, the project sells its power into the market and the parties settle the difference between the market price and the agreed strike price, while the buyer receives the environmental attributes.
Because it is the main source of repayment. The PPA's price, tenor, volume terms and offtaker credit determine how much revenue lenders can rely on, and therefore how much debt the project can raise.
Sometimes, on a merchant or partly hedged basis, but lenders usually apply more conservative assumptions, lend less and charge more. Most first-time developers need a contracted offtake to raise competitive project debt.
This article is for general information only and does not constitute legal, tax or investment advice. PPA terms vary by market and jurisdiction. Market data is cited from the source linked and was current at the time of writing. Financely is an advisory and arranging firm, not a lender or broker-dealer. Any financing is subject to lender underwriting, due diligence, credit approval, documentation and conditions precedent, and no outcome or closing timeline is guaranteed.
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