Power purchase Agreement

Definition of A power purchase agreement (PPA), or electricity power a agreement, is a contract between two parties, one which generates electricity (the seller) and one which is looking to purchase electricity (the buyer). In the agreement all the terms and conditions regarding commercial matters such as  when the project will begin commercial operation, schedule for delivery of electricity, penalties for under delivery, payment terms, and termination are agreed in detail. The Power Purchase agreement is a key item in setting up a power project .The project finance largely depends on this power purchase agreement which explains the revenue and credit quality of the power generating project. Since the requirement of power will be on continuous basis the buyer and seller enter into the agreement for minimum 5 to 20 years .During this contract period the buyer purchase energy and other auxiliary services also. According to power purchase agreement the responsibility of the selling company of Power is to own the power project by himself and form a special purpose entity to facilitate the non-recourse project finance. The responsibility of the buyer of the power purchase agreement is to purchase the electricity to meet its customers needs.le. Electricity traders may also enter into PPA with the Seller. one of the key benefits of the Power purchase agreement is that by clearly defining the output of the generating assets (such as a solar electric system) and the credit of its associated revenue streams, a Power purchase agreement can be used by the PPA provider to raise non-recourse financing from as per the agreement must be supplied to the buyer. Before the seller can sell electricity to a bank or other financing counterparty. The time is the essence of the power purchase agreement. The date of signing the contract between the two parties is called as effective date of the contract. The generation of power should start as per the completion date mentioned in the contract agreement. Again it is very clear that the entire power produced by the power producing company the buyer, the project must be fully tested and commissioned to ensure reliability and comply with established commercial practices. The commercial operation date is defined as the date after which all testing and commissioning has been completed and is the initiation date to which the seller can start producing electricity for sale (i.e. when the project has been substantially completed). The commercial operation date also specifies the period of operation, including an end date that is contractually agreed