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The renewable energy sector is booming. As companies and governments invest in renewable energy projects, understanding the financial and operational frameworks that underpin these projects is crucial. Two of the most common frameworks in the industry are Power Purchase Agreement (PPA) and Engineering, Procurement, and Construction (EPC) contracts.

What is Power Purchase Agreement(PPA)

A Power Purchase Agreement (PPA) is a contractual agreement between a power producer and a buyer. The buyer agrees to purchase electricity generated by a renewable energy project for a specified period, typically 10 to 25 years. The key aspects of PPA include;

  • Without initial Investment: The buyer does not put up the initial investment
  • Long Term Agreement: PPAs are long-term contracts that ensure a steady revenue stream for the power producer and a reliable energy supply for the buyer.
  • Fixed Price: The price of electricity is often fixed providing cost predictability for both parties
solar farm

What is Engineering, Procurement, and Construction (EPC)

Engineering, Procurement and Construction (EPC) contracts are agreements where a power producer is responsible for all activities from design, procurement, construction and handing over the finished installation to the end user who is the owner and buyer. The key aspects of EPC include;

  • Turnkey Solution: A full installation from start to finish is done with initial investment from the buyer.
  • Single Party Responsible: The contractor is responsible for the entire project, reducing the owner’s risk.
  • Quality Assurance: The performance and quality of the project falls on the contractor.

Key Differences Between PPA and EPC

Financial Commitments

PPA: involves financial commitments to the purchase of electricity over the contracted period.

EPC: involves financial commitments for the construction and commissioning of the project.

Risk Allocation

PPA: Shifts operational risks to the developer, while the buyer commits to a long term purchase of electricity.

EPC: The operational risk also falls on the developer but the fluctuation of the project cost falls on the buyer.

Revenue Generation

PPA: Focuses on revenue generation from selling electricity for the power producer. 

EPC: Focus on the revenue gained from building, installing and selling the facility as a whole for the power producer.

Understanding the difference between PPA and EPC values can determine which option is better suited to your company’s needs. As the industry continues to evolve, these contractual frameworks will remain essential in driving the growth and sustainability of renewable energy.

Contact Enerpower today if you would like more information on the difference between PPA and EPC.

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