PPA (Power Purchase Agreement)

Written and checked by the Energy Merchants desk · Reviewed 3 October 2026

PPA stands for power purchase agreement. It is a contract for buying electricity from a generator at a price agreed in advance, for a defined term. In rooftop solar, the usual form is an on-site PPA: a third party owns and operates the system, and the host pays a per-kilowatt-hour rate for the power it uses.

For a business that wants lower power costs without the capital outlay, this can work. The provider takes the equipment cost and risk, the customer pays only for energy, and the rate is often below the grid tariff, escalating by a set percentage each year.

Who owns the certificates

This is the part that surprises people. A PPA contract should say who owns the generation and the environmental attributes. For a small generation unit, STCs are created at installation and belong to the system owner, who may assign them to an agent. Under a PPA the provider owns the system, so it is normally the provider that takes the STCs and prices the electricity with that benefit in mind. Larger systems that create LGCs are the same: the contract decides who gets the certificates. See LGC creation and SGU.

From 1 October 2026, systems above 100 kW and up to 1 MW can create STCs with a five-year deeming period, which changes the economics for mid-scale PPAs. See mid-scale solar STCs.

In practice

Installers touch PPAs in two ways: building the systems for PPA providers and advising customers who are weighing a PPA against buying. For the second case, compare the PPA rate and escalator with a purchase on NPV and payback terms. Check the term length, end-of-term options, what happens if the roof is sold and who handles maintenance.

On the certificate side, the assignment form must be signed by the correct system owner. In a PPA that may not be the building’s owner.

Common confusion

A PPA is not a lease or a loan. In a lease the customer pays a fixed rent. In a PPA they pay for energy used. Retail electricity supply is also separate, and a PPA does not replace the retailer for the grid-supplied share of use.

See STC trading and the glossary.