What is a PPA (Power Purchase Agreement) ?
Definition:
A Power Purchase Agreement (PPA) often refers to a long-term electricity supply agreement between two parties, usually between a power producer and a customer (an electricity consumer or trader). The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. Since it is a bilateral agreement, a PPA can take many forms and is usually tailored to the specific application. Electricity can be supplied physically or on a balancing sheet. PPAs can be used to reduce market price risks, which is why they are frequently implemented by large electricity consumers to help reduce investment costs associated with planning or operating renewable energy plants.
A Power Purchase Agreement (PPA) is an arrangement in which a third-party developer installs, owns, and operates an energy system on a customer’s property. The customer then purchases the system's electric output for a predetermined period. A PPA allows the customer to receive stable and often low-cost electricity with no upfront cost, while also enabling the owner of the system to take advantage of tax credits and receive income from the sale of electricity. Though most commonly used for renewable energy systems, PPAs can also be applied to other energy technologies such as combined heat and power (CHP).
Definition:
A Power Purchase Agreement (PPA) often refers to a long-term electricity supply agreement between two parties, usually between a power producer and a customer (an electricity consumer or trader). The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices, accounting, and penalties for non-compliance. Since it is a bilateral agreement, a PPA can take many forms and is usually tailored to the specific application. Electricity can be supplied physically or on a balancing sheet. PPAs can be used to reduce market price risks, which is why they are frequently implemented by large electricity consumers to help reduce investment costs associated with planning or operating renewable energy plants.
A Power Purchase Agreement (PPA) is an arrangement in which a third-party developer installs, owns, and operates an energy system on a customer’s property. The customer then purchases the system's electric output for a predetermined period. A PPA allows the customer to receive stable and often low-cost electricity with no upfront cost, while also enabling the owner of the system to take advantage of tax credits and receive income from the sale of electricity. Though most commonly used for renewable energy systems, PPAs can also be applied to other energy technologies such as combined heat and power (CHP).
https://www.epa.gov/green-power-markets/summary-inflation-reduction-act-provisions-related-renewable-energy#ITCPTC
Investment Tax Credit and Production Tax Credit
The Investment Tax Credit (ITC) and Production Tax Credit (PTC) allow taxpayers to deduct a percentage of the cost of renewable energy systems from their federal taxes. These credits are available to taxable businesses entities and certain tax-exempt entities eligible for direct payment of tax credits (see Tax Credit Monetization below).
Certain projects are eligible for either the ITC or PTC, but not both.
Eligible for ITC or PTC
multiple solar and wind technologies,
municipal solid waste,
geothermal (electric), and
tidalenergy storage technologies,
microgrid controllers,
fuel cells,
geothermal (heat pump and direct use),
combined heat & power,
microturbines, and interconnection costsbiomass,
landfill gas,
hydroelectric,
marine and hydrokinetic
Through at least 2025, the Inflation Reduction Act extends the Investment Tax Credit (ITC) of 30% and Production Tax Credit (PTC) of $0.0275/kWh (2023 value), as long as projects meet prevailing wage & apprenticeship requirements for projects over 1 MW AC.
For systems placed in service on or after January 1, 2025, the Clean Electricity Production Tax Credit and the Clean Electricity Investment Tax Credit will replace the traditional PTC / ITC.
Projects can qualify for additional credit amounts, described below:
Category Amount* for Projects
less than 1MWAC
(Cumulative)Amount* for Projects
greater than or equal to 1MWAC
(Cumulative)
Base Tax Credit
ITC: 30%
PTC:2.75¢/kWh
ITC: 6%
PTC: 0.5¢/kWh
Wage & Apprenticeship Requirements (Requires a percentage of total labor hours performed by qualified apprentices)
ITC: N/A
PTC: N/A
ITC: +24%
PTC:+2.25¢/kWh
*The ITC amount is a percentage of the total qualifying project cost basis. All values assume labor requirements are met.
Investment Tax Credit and Production Tax Credit
The Investment Tax Credit (ITC) and Production Tax Credit (PTC) allow taxpayers to deduct a percentage of the cost of renewable energy systems from their federal taxes. These credits are available to taxable businesses entities and certain tax-exempt entities eligible for direct payment of tax credits (see Tax Credit Monetization below).
Certain projects are eligible for either the ITC or PTC, but not both.
Eligible for ITC or PTC
multiple solar and wind technologies,
municipal solid waste,
geothermal (electric), and
tidalenergy storage technologies,
microgrid controllers,
fuel cells,
geothermal (heat pump and direct use),
combined heat & power,
microturbines, and interconnection costsbiomass,
landfill gas,
hydroelectric,
marine and hydrokinetic
Through at least 2025, the Inflation Reduction Act extends the Investment Tax Credit (ITC) of 30% and Production Tax Credit (PTC) of $0.0275/kWh (2023 value), as long as projects meet prevailing wage & apprenticeship requirements for projects over 1 MW AC.
For systems placed in service on or after January 1, 2025, the Clean Electricity Production Tax Credit and the Clean Electricity Investment Tax Credit will replace the traditional PTC / ITC.
Projects can qualify for additional credit amounts, described below:
Category Amount* for Projects
less than 1MWAC
(Cumulative)Amount* for Projects
greater than or equal to 1MWAC
(Cumulative)
Base Tax Credit
ITC: 30%
PTC:2.75¢/kWh
ITC: 6%
PTC: 0.5¢/kWh
Wage & Apprenticeship Requirements (Requires a percentage of total labor hours performed by qualified apprentices)
ITC: N/A
PTC: N/A
ITC: +24%
PTC:+2.25¢/kWh
*The ITC amount is a percentage of the total qualifying project cost basis. All values assume labor requirements are met.