A Power Purchase Agreement (PPA) is a long-term contract between an energy provider and a buyer, typically a business, government entity, or utility. Under this agreement, the provider installs, owns, and maintains a renewable energy system (such as solar panels), while the buyer agrees to purchase the electricity produced from renewable technology installed at your premises at a discounted rate, typically 20–50% lower than grid prices.
PPAs are widely used to help businesses adopt renewable energy without the high upfront costs of purchasing or maintaining the system. They provide an alternative way for businesses to lower electricity expenses and reduce their carbon footprint.
Zero upfront investment.
Lower than grid energy prices.
Commitment for monthly payments over 10-25 years.
RPI increases affect long-term pricing.
Maintenance is covered by the provider.
The different types of power purchase agreements (PPAs) explained #
Power Purchase Agreements (PPAs) vary in their structures, offering different levels of flexibility. The key differences in PPA contracts include contract length, pricing structure, and Retail Price Index (RPI) rates.
PPAs are typically long-term agreements, ranging from 10 to 25 years. Some have fixed pricing, where the buyer pays a set rate per kilowatt-hour (kWh) throughout the contract, or escalating pricing, where the rate increases at a predetermined percentage annually. Some agreements also include RPI based pricing, which adjusts based on electricity market fluctuations.
Power purchase agreement comparison #
Each type of Power Purchase Agreement (PPA) aligns with different financial strategies, making the optimal choice dependent on factors such as cash flow, risk tolerance, and long-term energy objectives. The table below provides a comparison of initial energy pricing and total costs over the typical duration of a PPA.
Variable RPI-Indexed PPA #
In a variable RPI-indexed PPA, the energy price increases annually in line with the Retail Price Index (RPI).
Lowest initial price per kilowatt.
Early savings due to low starting energy prices.
Energy costs rise annually with RPI inflation.
Long-term savings depend on inflation rates.
- Companies comfortable with inflation-linked pricing.
Fixed increase PPA #
A fixed increase PPA means electricity prices rise at a predetermined rate each year (e.g., 2% per year), regardless of inflation.
Protection against high inflation.
Predictable pricing for during of term.
Lower than grid energy rates.
Yearly prices increases, but fixed.
Long-term savings depend on inflation rates.
- Businesses wanting price certainty with structured increases.
Capped RPI-Indexed PPA #
A capped RPI PPA functions like a variable RPI PPA, but with an upper limit on annual price increases (e.g., capped at 2.2% per year).
Protection against high inflation.
Lower than grid energy rates.
Yearly prices increases, but only within a capped range.
Inflation-linked price increases each year.
Long-term savings depend on inflation rates.
- Businesses that want PPA benefits with inflation protection.
Fixed PPA (no price increases) #
A true fixed PPA ensures the energy price remains the same for the entire contract term (e.g., 20–25 years).
Highest initial price per kilowatt.
Simplified budgeting.
Price predictability.
Long-term locked-in price.
Most beneficial in high-inflation environments.
Potential for higher long-term savings.
- Businesses wanting maximum price stability.
- Companies hedging against rising electricity costs.
Choosing the right PPA for your business #
Each option has distinct benefits, depending on your financial strategy, risk appetite, and long-term goals.
If you’re considering renewable technology but unsure which financing model is best for your business, contact our experts for tailored advice. Green Shield Group work with businesses to find the most cost-effective solution to align with energy and financial goals.
| PPA | Starting Price Per Kilowatt | Long-term Predictability | Potential Savings | Best For |
|---|---|---|---|---|
| Variable | None | Low (Inflation-dependent) | High | Businesses comfortable with inflation-linked costs |
| Capped | None | Medium (Capped inflation) | High | Businesses wanting some cost certainty |
| Fixed Increase | Moderate | High (Predictable increases) | High | Companies preferring stable price rises |
| Fixed | None | Maximum (No increases) | Moderate | Businesses needing absolute cost certainty |
