Frequently Asked Questions About Power Purchase Agreements (PPAs)

What is a Power Purchase Agreement (PPA)? A Power Purchase Agreement (PPA) is a long-term contract for the purchase and sale of energy between a renewable energy generator and a consumer (usually a business). This agreement allows organizations to secure a steady supply of clean energy at a fixed or predictable price for a specified period (usually 5 to 20 years), protecting them from electricity market volatility.

What is a PPA contract in Mexico? A PPA contract is the legal instrument that defines all the terms of the transaction: from the volume of energy to be delivered and the price per kilowatt-hour, to liability clauses and environmental attributes (such as CELs or I-RECs). In Mexico, these contracts allow companies to significantly reduce their operating costs and meet their decarbonization goals within a framework of legal certainty.

What are the advantages of a power purchase agreement (PPA)? Entering into a power purchase agreement (PPA ) offers three main benefits:

1. Cost Savings: Energy prices lower than those of the basic service rate.

2. Financial Stability: Eliminates the uncertainty caused by fluctuations in fossil fuel prices.

3. Sustainability: Ensures that the energy consumed comes from 100% renewable sources, enhancing the company’s image and complying with international ESG standards.

What types of PPA contracts are there? There are mainly two types:

• Physical PPA: Where energy is delivered directly via the power grid to the customer's point of consumption.

• Virtual or Financial PPA: This is a financial arrangement in which a fixed price is agreed upon; if the market price differs, the parties settle the difference, allowing the company to reap the benefits of renewable energy without needing to make changes to its physical infrastructure.