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Power Purchase Agreements (PPAs): Why They Are Now Critical for the Energy Sector

Power Purchase Agreements (PPAs) have become one of the central instruments in the European electricity market. At their core, a PPA is a medium- or long-term electricity supply contract between a renewable energy producer and a buyer — whether a supplier, aggregator, or final consumer. These contracts can take a physical form, involving actual delivery of electricity, or a financial form, functioning as a risk-hedging mechanism without physical delivery.

In practice, PPAs provide predictability for both parties: they allow buyers to stabilise electricity costs and enable producers to secure a stable revenue stream over the life of the project. This is a decisive factor in making renewable projects bankable, reducing market risk and improving financing conditions.

Why have PPAs been gaining relevance across Europe for years?

The growing demand for long-term contracts is driven by several factors:

• Price volatility and energy security concerns: PPAs serve as hedging instruments.
• Reform of the European market: Regulation (EU) 2024/1747 strengthens the role of bilateral contracts as a pillar of stability and investment.
• Corporate decarbonisation targets: more and more companies aim to ensure that their electricity consumption comes from renewable sources.

In Portugal, Decree-Law 15/2022 and the recent Ordinance No. 367/2024 establish a clear framework for bilateral energy contracting, including guarantee mechanisms and future platforms that will increase liquidity in the PPA market.

Challenges in implementing PPAs

Despite their importance, several obstacles limit the execution of these contracts:

• Slow and unpredictable permitting processes.
• Constant regulatory evolution.
• A macroeconomic environment marked by high interest rates.
• Market price volatility.
• Rising demand driven by green industrialisation, data centres, and new logistics.

From a legal perspective, elements such as change-in-law clauses, financial guarantees, price adjustment mechanisms, and the increasing use of sleeving clauses — introducing tripartite producer–supplier–buyer relationships — are gaining importance.

New Executive Programme: The Electricity Trading Market and Power Purchase Agreements (PPAs)

Pérez-Llorca and CATÓLICA-LISBON | Executives are launching a new executive programme dedicated to this topic, designed to equip professionals in the energy sector — particularly in renewables — with the economic, legal, and regulatory knowledge that underpins the electricity market and the strategic role of PPAs in the European energy transition. The programme, delivered in person and after working hours, has a total duration of 34 hours and starts on 15 January 2026. Applications are now open.

More information: https://clsbe.lisboa.ucp.pt/pt-pt/mercado-de-transacao-de-eletricidade-e-ppa/apresentacao?change-language=1