# Power Purchase Agreement A power purchase agreement is a long-term contract to buy electricity at an agreed price. Its real function is financial: a developer cannot borrow to build a power plant without a creditworthy buyer committed for fifteen or twenty years, and the agreement is that commitment. When a compute operator signs one, it is not merely buying power; it is causing generation to be built. > [!note] The one-sentence version > Promise to buy the output for twenty years and the plant gets financed; that signature is what actually adds generation to the system. ## Why it exists Generation is capital-intensive and long-lived, while electricity markets are volatile. No lender funds a project exposed to twenty years of price risk, and no developer carries it alone. A long-term contract transfers that risk to a buyer who wants price certainty anyway, and the project becomes financeable. This is the mechanism by which private demand builds public infrastructure, and compute operators have become among its largest users. ## Prerequisites - **Physical agreement:** the buyer takes delivery of actual energy, which requires being in the same market and handling scheduling and imbalance. - **Virtual, or financial, agreement:** the plant sells into the wholesale market and the buyer settles the difference between the market price and the contract price, receiving the renewable attributes. The buyer influences what gets built without taking physical delivery. - **Energy attribute certificate:** the tradable instrument representing one megawatt-hour of generation with particular attributes; the unit in which clean-power claims are made. - **Additionality:** whether the contract caused new generation to exist rather than reassigning the output of a plant that would have been built regardless. It is the difference between a procurement claim and a physical contribution. - **Annual against hourly matching:** matching total annual consumption with total annual clean generation, against matching consumption in every hour with clean generation in that same hour. The second is far harder and far more meaningful, because it accounts for what the grid actually did at three in the morning. - **Shaped or firm product:** a contract delivering a specified profile rather than whatever the weather produced, with the counterparty carrying the firming cost. ## How the structures compare An annual-matched portfolio of wind and solar certificates is straightforward and widely used, and it leaves the facility drawing grid power, with whatever generation was on the margin, during many hours of the year. Hourly-matched procurement requires a portfolio that actually covers the load around the clock, which means storage, firm resources, or both; it costs more, and it is the only version of the claim that corresponds to physical reality. The leading operators have moved toward hourly matching and publish their progress, which is a meaningful standard precisely because it is hard to meet. Co-located generation is the most direct structure of all: the plant and the load share a site, and the question of what the grid did becomes largely moot; see [[wiki/Behind-the-Meter Generation|Behind-the-Meter Generation]]. ## Why a town should care A compute project signing long-term contracts for new generation adds capacity to the regional system, and capacity added is capacity available to everyone on it. Whether that happens depends on whether the contracts are additional and whether they are matched to the hours the load actually runs. These are specific, checkable questions, and a project that answers them in public is making a verifiable commitment rather than a gesture. See [[wiki/Community Benefit Agreement|Community Benefit Agreement]]. ## Relationships - **finances:** [[wiki/Turbine Supply|Turbine Supply]] · generation capacity - **alternative to:** [[wiki/Behind-the-Meter Generation|Behind-the-Meter Generation]] - **interacts with:** [[wiki/Utility Interconnection|Utility Interconnection]] · [[wiki/Demand Response|Demand Response]] - **appears in:** [[wiki/Capital Intensity|Capital Intensity]] - **community context:** [[wiki/What a Data Center Gives Back|What a Data Center Gives Back]] · [[wiki/Energy Abundance|Energy Abundance]] - **source articles:** [[articles/Vertically Integrating an AI Superpower from AI Factory to Citizen|Vertically Integrating an AI Superpower from AI Factory to Citizen]] · [[articles/The Gigawatt Is the New Measure of War|The Gigawatt Is the New Measure of War]] - **collection route:** [[collections/American Infrastructure|American Infrastructure]] · [[collections/American|American Collection]] ## Evidence posture - **Established:** the financing function of long-term offtake; physical and virtual structures; energy attribute certificates as the claim unit; the definitions of additionality and of annual against hourly matching; shaped and firm products. - **Established (datestamped):** as of October 2026, several large compute operators publish hourly-matching progress and contract for new generation at multi-gigawatt scale. - **Strongly indicated:** large private offtake materially accelerating new generation construction; the contracting is documented and attribution of specific plants to specific contracts varies by project. ## Sources - [How the Electrical Grid Is Being Rebuilt for AI](https://www.bloomberg.com/) — Bloomberg Primer, October 2026; the scale of planned private spending on electricity infrastructure. - Corporate clean-energy procurement reporting and wholesale market contracting practice, as reviewed October 2026.