What is a power purchase agreement?

These contracts often run for 5 to 20 years, and buyers include utilities and large companies. Because the revenue is set in advance, a PPA can help a project raise financing before it is built. The generator gives up the highs of the market in exchange for the protection against its lows.

Say a wind farm agrees to sell at $50 a megawatt hour. If the market falls to $30 or rises to $80, the farm still receives $50.

It gives a project income it can show lenders, and that income is only as good as the buyer.