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PPAs: Common terminology

Written by
Tomás Oliveira

Let's dive into the ABC of PPA negotiations with a roundup of key terms you're likely to encounter.

2 min
6th Mar, 2024

From understanding various delivery types to unraveling common structures, this glossary aims to demystify the jargon and serve as an introductory guide to newcomers in PPA contracts.



Physical: An agreement in which a power generator delivers the physical electricity to an offtaker through the electrical grid at a fixed price per MWh for the duration of the agreement.

Financial: In a financial hedge, the asset’s generated electricity is sold to the spot market where the offtaker receives or pays the difference between the capture price and the PPA price.

Sleeved (Physical): A Sleeved PPA involves a "sleeve" intermediary to facilitate renewable energy transactions between developers and corporate offtakers, similar to a utility acting as a Balancing Responsible Party.



Baseload: The offtaker agrees to purchase a fixed amount of electricity production throughout every hour of a month/year (monthly and yearly baseload PPAs).

Pay-as-produced: The offtaker agrees to purchase a percentage of the actual produced electricity. In this structure, the electricity supply variations risk, also called volume risk, is born by the offtaker.

Fixed Profile: The offtaker agrees to purchase a percentage of the expected production profile on an hourly basis (the committed production).



Commercial Operation Date (COD): It’s the day that the system becomes fully operational and starts injecting electricity into the grid.

PPA start date: Refers to the day upon which the fixed PPA price settlements start to be applied.

PPA duration: Referes to the duration on which the PPA is active for and it can vary depending on the negotiated terms, but it typically ranges from 1 to 15 years.



But wait, did we overlook any of the main concepts? Let us know what other definitions should be included.

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PPA Origination, Structuring and Pricing