How power purchase agreements can help wind and solar get on the grid

Getting a lot more renewable energy on the grid requires building large solar and wind farms. They can cost hundreds of millions of dollars each.

To secure financing for these projects, developers have to prove that they will make that money back over time.

“Otherwise no lender is going to give you a loan to build a project,” Craig Gordon says.

Gordon is with Invenergy, a wind and solar developer. He says one way to provide that guarantee is through a power purchase agreement.

“A power purchase agreement is simply a contract between a wind farm or a solar farm and a buyer, like a utility or a large industrial customer like Google or Facebook or Microsoft,” he says, “which enables us to go to the bank and say, ‘Look here, bank, we have a 20-year contract with x,y,z utility for x amount of dollars. Now will you lend us the money so that we can build this project?’”

Gordon says entering into these contracts is also valuable for the companies or utilities buying the energy. It locks in a long-term price and shows they have a plan to meet clean energy targets.

So a power purchase agreement is a lot more than a legal document. It’s a tool to help transition to a clean energy economy.