PPA or Power Purchase Agreement: definition

A Power Purchase Agreement (PPA) is a long-term electricity purchase contract concluded directly between a renewable energy producer and a buyer, typically an industrial company, a service-sector organization, or an energy supplier.

Under this agreement, the buyer commits to purchasing the electricity generated by a solar or wind installation over a period that can range from 10 to 20 years, at a price and under conditions defined in advance. This principle, known as pay-as-produced, means that the electricity purchased corresponds to the actual output of the renewable asset.

In recent years, PPAs have become a key tool for companies seeking to:

• secure part of their electricity supply over the long term;
• gain visibility on energy costs;
• reduce their carbon footprint;
• directly support the development of new renewable generation capacity.

By directly linking a green energy production site to a consumer, a PPA reconciles economic performance with environmental commitment.

How does a PPA work?

Contrary to what one might assume, a PPA does not usually mean that the consumer’s site is physically connected to the renewable generation facility.

The electricity produced by the solar or wind farm is injected into the public grid. Meanwhile, the company continues to be supplied through that same grid, as with any standard contract. The link between producer and buyer is therefore primarily contractual and financial.

A PPA operates through three complementary flows:

• Physical flow: renewable electricity is injected into the grid.
• Contractual and financial flow: the buyer commits to remunerating this production under the terms defined in the contract.
• Environmental flow: the Guarantees of Origin (GoOs) associated with the production are transferred to the buyer, enabling certification of the renewable share of its consumption.

Operating diagram of a PPA

This mechanism allows a company to benefit from green electricity produced by an asset located hundreds of kilometers away — or even in another country.

Depending on the structure, a PPA may therefore resemble a form of remote renewable energy procurement, integrated into the company’s electricity portfolio, rather than a simple local power supply.

Main types of PPAs

All PPAs rely on the same contractual principle between a renewable electricity producer and a buyer. What varies is how financial flows are structured and the quality of the Guarantees of Origin (GoOs) associated with the contract.

In a PPA — and even more so in a Clean Firm Power (CFP) contract — the level of additionality may differ depending on the origin of the GoOs covering the supplied volume.

GoOs may come from:

• standard purchases on the European market (AIB GoOs); or
• new renewable assets whose production is contracted over the long term.

In the latter case, the contract directly contributes to financing new generation capacity — this is what is known as additionality. This higher-quality environmental attribute comes at a cost that some clients choose to bear.

Finally, the level of green coverage may also vary. A contract can be covered 100% by GoOs or only partially, depending on the buyer’s environmental ambitions.

Three main PPA structures are generally distinguished:

PPA "On-site"

In this model, the production facility is located directly on the consumer's site (rooftop solar, solar canopies, or adjacent land). The electricity is physically consumed on-site, creating a direct link between generation and usage and reducing reliance on the public grid.

PPA "Off-site"

The production site is located remotely. Electricity is injected into the public grid, and the buyer is supplied through that same network. The relationship remains contractual, but the electricity is delivered within the same market zone as the consumer. Guarantees of Origin are transferred to the buyer.

"Virtual" PPA

In this structure, there is no physical delivery of electricity between the producer and the buyer. The contract relies on a financial mechanism: the company purchases electricity on the market through its usual supplier, while the PPA settles the difference between the market price and the agreed contractual price with the producer. Guarantees of Origin are transferred to the buyer.

Key considerations in a PPA

While a PPA is an effective tool for procuring renewable electricity over the long term, its implementation requires a clear understanding of several operational parameters.

Solar and wind generation inherently depend on weather conditions and therefore do not necessarily match a company’s consumption profile. At times, production may exceed demand; at others, it may be insufficient.

This variability implies for the buyer:

• integrating this production into its electricity portfolio;
• managing the gap between production and actual consumption;
• using the market to sell surplus electricity or cover shortfalls;
• implementing balancing and adjustment mechanisms.

Behind the simple pay-as-produced principle, a PPA therefore requires an appropriate organizational setup to manage integration challenges and ensure consistency between electricity purchased and consumed.

An advanced form of PPA: Clean Firm Power

Corporate needs are evolving. Beyond purchasing renewable electricity, companies now seek greater security, simplicity, and predictability in how this energy integrates into their actual consumption.

A PPA can therefore be structured to go beyond the basic pay-as-produced principle. By combining multiple generation assets, integrating flexible capacity, and anticipating balancing needs, it becomes possible to align the contract with the client’s consumption profile and control integration costs from the outset.

This approach led TotalEnergies to develop Clean Firm Power (CFP) — an advanced form of PPA in which the supplied volume, its integration into the client’s electricity portfolio, and the management of intermittency are built directly into the contract structure.

Under this model, TotalEnergies commits to delivering a constant electricity volume (baseload) — a stable supply block tailored to the client’s consumption profile. The intermittency risk associated with renewable generation is thus borne by the supplier rather than the buyer.

This structured PPA model is made possible by TotalEnergies’ integrated approach, combining a large portfolio of renewable assets, flexible generation capacity, and electricity supply expertise across multiple markets.