POWER PROCUREMENT

Power Purchase Agreements for Datacenters

Summary • 12 Data Sources

What is a PPA for datacenters?

A Power Purchase Agreement (PPA) is a long-term contract to buy electricity from a specific generator at a fixed or indexed price. For datacenters, PPAs provide price certainty and renewable energy credits for ESG goals. Virtual PPAs are financial hedges (no physical power delivery), while physical PPAs deliver actual electricity. Typical terms: 10-20 years, $30-60/MWh for renewables.

Key Data Points

Pricing Range: $25 - $50 per MWh (Solar/Wind)
Typical Tenor: 10 - 20 years
Types: Physical PPA (actual delivery) vs Virtual PPA (financial hedge)
Escalators: 0 - 2% annually
Matching: Shifting from Annual to 24/7 Carbon-Free Energy (CFE)

Track CFE Matching →Check Grid Stress

Types of Power Purchase Agreements

Physical PPA

Actual electricity delivery from generator to datacenter.

• Direct physical delivery of power
• Same grid region required
• Often behind-the-meter or direct wire
• Bundled with RECs
• Best for: On-site or nearby generation

Virtual PPA (VPPA)

Financial contract for difference, no physical delivery.

• Contract for difference (CFD) structure
• Can be in different grid region
• Buyer takes wholesale price risk
• RECs transferred separately
• Best for: Large corporate buyers, flexibility

How Virtual PPAs Work

Fixed Price

Buyer agrees to pay $45/MWh fixed

Market Price

Generator sells power at wholesale ($50/MWh)

Settlement

If market > fixed: generator pays buyer difference

RECs

Buyer receives RECs for green claims

Example: If market price is $50 and fixed price is $45, generator pays buyer $5/MWh. If market drops to $40, buyer pays generator $5/MWh. Buyer still pays utility for actual power delivery.

Typical PPA Terms

Term	Solar PPA	Wind PPA	Battery Storage
Contract Length	10-25 years	10-20 years	10-15 years
Price Range	$25-45/MWh	$30-50/MWh	$60-100/MWh
Escalator	0-2% annually	0-2% annually	1-3% annually
Capacity Factor	25-30%	35-45%	N/A
Curtailment Risk	Moderate	Higher	Low

24/7 Carbon-Free Energy (CFE) Matching

Annual vs Hourly Matching

Traditional PPAs match annual consumption with annual generation. New 24/7 CFE standards require hourly matching.

• Annual matching: 100% renewable claim if annual RECs = annual usage
• 24/7 matching: Renewable supply must match demand every hour
• Google/Microsoft standard: Targeting 100% 24/7 CFE by 2030
• Requires: Diverse generation mix + storage

Portfolio Approach

Achieving 24/7 CFE requires combining multiple technologies:

• Solar: Daytime generation (25-30% CF)
• Wind: Often stronger at night (35-45% CF)
• Battery: Shift generation to match load
• Geothermal/Nuclear: 24/7 baseload

PPA Advantages & Risks

Advantages

•Long-term price certainty (10-25 years)
•RECs for sustainability reporting
•Often below current market prices
•Supports new renewable development
•Hedge against electricity price inflation

Risks

•Basis risk (VPPAs in different markets)
•Intermittency (solar/wind production varies)
•Project/developer risk (construction, operations)
•Long-term commitment (may outlast datacenter)
•Accounting complexity (VPPA derivatives)

Frequently Asked Questions

What minimum load size is needed for a PPA?

Most PPAs require 50-100 MW minimum to be cost-effective for developers. Aggregated PPAs allow smaller buyers to participate. Utility green tariffs offer an alternative for smaller loads.

How are PPAs accounted for on the balance sheet?

VPPAs are derivatives and may require mark-to-market accounting (ASC 815). Physical PPAs may be "own use" exempt if meeting certain criteria. Consult with auditors early—accounting treatment varies by structure.

Can I exit a PPA early?

Most PPAs have termination clauses with significant penalties (often remaining contract value). Some include buyout provisions after 10 years. Negotiate early termination rights carefully.

How do RECs work in a PPA?

RECs (Renewable Energy Certificates) represent the "green" attribute of renewable electricity. In a PPA, RECs are typically bundled (physical) or transferred separately (VPPA). RECs must match claim year and may have vintage requirements for certification.