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A power purchase agreement is a contract for the sale of electricity from a generator to an offtaker. PPAs come in different commercial forms. Corporate PPAs are bilateral contracts with industrial or commercial offtakers; sleeved PPAs involve a supplier that physically routes power to the grid while accounting for the contract; merchant arrangements leave the project exposed to wholesale market prices. The chosen structure directly influences price certainty and credit exposure.
Key contract terms include the pricing mechanism (fixed price, floor/ceiling collars, indexation to wholesale or inflation indices), the contract length (often 5–15 years for smaller projects), volume tolerances and availability/curtailment provisions. Of particular importance for small generators are credit support requirements (parent guarantees or letters of credit), shaping the offtaker credit risk and the need for aggregators that pool multiple projects to improve negotiating leverage.
Other practical factors affect revenue: settlement timing, the role of the supplier or aggregator in balancing, and any revenue sharing for embedded benefits. For many small assets, aggregators and specialist suppliers provide routes to market when direct corporate counterparties are not available, but that intermediary layer introduces counterparty and operational risk.
For retail investors in fractional renewable assets, the PPA profile is a primary determinant of cashflow predictability and credit exposure. Understanding whether a project is merchant, aggregator‑sleeved or hedged through a corporate PPA helps investors assess the stability of distributions and the dependency on counterparty performance.