Frequently Asked Questions

What are independent power projects?

Independent Power Projects (IPPs) are electricity generation projects that are usually tied to private investment and often based on a contract with a utility, guaranteeing that the utility will purchase power over a span of decades. Since private investment of this size is risky in emerging markets, IPPs are often protected through an explicit or implicit financial guarantee from the government. IPPs are important because they facilitate the flow of private capital to the energy sector, which is a critical part of satisfying unmet demand for power and expanding clean energy in emerging economies.

What is a power purchase agreement?

A Power Purchase Agreement (PPA) is a long-term contract between a power generator and a power customer (usually a utility). It determines the flow of revenue between buyer and seller and provides the terms by which potential investors allocate risk.

In emerging markets, development of IPPs requires a PPA; without a PPA, the project cannot be financed.

How will power contract transparency actually catalyze clean energy development around the world?

In three important ways:

First, by making clean energy cheaper. Rapid deployment depends in part on driving down prices. But reaping the benefits of competition requires prices to be known, not kept secret. Headline prices for electricity (e.g. the total amount per kWh that utilities are paying producers for power) are sometimes announced, but without more information about the contract details, true costs remain hidden — and thus the benefits of competition are lost. Contract disclosure will clarify the underlying factors behind pricing and thus create incentives for better pricing for everyone.

Second, by clearing the pipeline for new and better projects. Secrecy often leads to bad contracts that clog the system. Many countries have experienced the rollercoaster of signing lots of secret contracts for more power than they end up needing, or for power that's overpriced and burdens consumers. They then impose a moratorium on new contracts, which stalls everything and delays higher quality projects from being developed. A commitment to future disclosure would reduce these risks.

And third, by enabling the market to scale faster. Clean energy projects can't be deployed quickly if every single contract has to be custom-built and negotiated over many years. All that time and duplicative effort is a waste. Contract disclosure would help the market work more efficiently by establishing standards and encouraging countries to follow proven contract models.

Why should we be concerned about PPA disclosure specifically, rather than broader procurement reform?

We should be concerned about both! PPA disclosure is one vital piece of necessary procurement reform. Competitive procurement methods — such as auctions — have been shown to drive down prices, accelerate project execution, and enhance transparency (when designed and executed well). But competitive processes without transparency won't solve the problem, and in fact can add to public distrust and market volatility. And in the many countries still using unsolicited, non-competitive methods, PPA disclosure is a zero-cost way to enhance transparency and accountability.

Why do some PPAs remain secret?

The official reason is that PPAs contain commercially confidential information. This has also been claimed for sovereign loans, oil contracts, and other government procurement. But in reality, contracts include very little that might require some form of privacy. That's why contract disclosure should be the norm, but some information could be redacted (blacked out) if absolutely necessary. And the public should know what and how much is being deliberately kept secret. In practice, secrecy usually benefits a specific party; that party is never the public.

How does lack of power contract transparency harm economies?

In emerging economies where project risk is higher, many PPAs are guaranteed (either explicitly or implicitly) by the government. For example, in some countries, the government provides a sovereign guarantee to the project, assuring developers that it will step in to cover potential risks such as non-payment by the utility. In other cases, the utility is a state-owned entity and relies on subsidies from the government. When the utility owes money to power producers, that burden ultimately falls on the government and, indirectly, on citizens. In instances where utilities have become heavily indebted to IPPs and cannot cover their costs, the general public suffers because electricity service declines and/or electricity bills go up.

How can I play a role in advocating for greater power contract transparency?

Abundant, affordable electricity matters to everyone. A good first step is just learning more about what's happening in your own country and whether a lack of transparency is a problem or not. PPA transparency matters to:

  • Governments and policy makers
  • Journalists and civil society
  • Project developers and investors
  • Climate and clean energy advocates
  • Regular citizens

You can also visit the Energy for Growth Hub's PPA Watch to see how countries are performing on power contract transparency.