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Power purchase agreement refers to an agreement that can be used to create a contract for the purchase of actual power or energy. It is also known as energy service agreement. If you are one of the people considering this type of agreement, there are several things you need to remember.

In a typical power purchase agreement, it is important that you make sure specific elements are included. The involved parties must be specifically mentioned and spelled out as well as any relevant milestones must be stated. The details of output guarantees and how exactly the delivery of power should be handled must be discussed. Details such as engineering warranties, power quantity commitment, metering and net exchange should also be included. The risk allocation must be addressed as well. This may include issues such as commercial risks and sovereign risks if dealing internationally. It is also important to consider regulatory risks as well as excuse and force majeure. Other important issues such as distribution, transmission and interconnection agreements must also be dealt with. There may also be some tariff issues that require attention. There may be tariff penalties for nonperformance. An update mechanism and fuel price hedging may be necessary.

It is important that an individual fully understands how important it is to be informed and aware of all the advantages and risks before entering a power purchase agreement.

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