PPA pricing is the process of setting the price a buyer pays for a generator's output over the term of a power purchase agreement. That price has to reflect what the output will actually be worth in the wholesale market, interval by interval, plus the volume, shape, location and credit risk the seller takes on. If the generation forecast behind it is wrong, the error stays in the contract for its whole term, which can last a number of years.
This guide explains how PPA prices are built, which pricing structures are used in the UK and Australian markets, and why shape risk is where most PPA margin is won or lost. It is written for PPA originators and commercial teams at gentailers, energy retailers and renewable developers.
A PPA price starts with two forecasts: how much the asset will generate, and what wholesale power will be worth at the times it generates. Combining them gives the capture price, which is the value of this specific generator's output rather than an average megawatt-hour.
The rest of the price covers the risks around that core value:
Shape risk is the risk that a generator's real output profile differs from the profile used to price the contract. It matters because the value of a megawatt-hour depends on when it is produced. A contract priced on the wrong shape is mispriced in every interval for the whole term.
Most PPA pricing still starts from a regional or national average generation curve. That curve cannot see what makes a site different: a single-axis tracker shifting output into the afternoon, a coastal wind farm with a different diurnal pattern, or local cloud cover that a regional average smooths away. One PPA originator put it plainly: "We're pricing with a national average when the customer's site has completely different generation characteristics. That gap is our margin."
Illustrative example (not market data): a generic regional solar profile gives a capture price of $60/MWh. A site-specific forecast for the same farm gives $55/MWh. On 100,000 MWh a year over a ten-year term, that $5/MWh gap adds up to $5 million of value priced into the contract that the asset will never earn.
The gap is widening in both markets. As more solar connects, midday prices fall further and negative-price intervals become more frequent, so the difference between an average profile and a real one costs more every year. Pricing shape risk accurately needs hyperlocal generation forecasting at the site level, run against the forward curve interval by interval.
The contract structure decides who carries shape and volume risk, so it moves the price more than almost any other term. In a pay-as-produced PPA, the buyer takes output whenever it comes and carries the shape risk. In a baseload or firmed PPA, the seller delivers a fixed shape and prices the cost of firming into the deal.
The method is the same in both markets, but the inputs are not. Great Britain settles half-hourly, while the NEM settles every five minutes. Location costs, renewable certificates (REGOs in the UK, LGCs in Australia) and network charges are all calculated differently, so a model built for one market will misprice the other.
Factor is a forecasting-led pricing engine for energy retailers, gentailers and C&I energy businesses in Australia, New Zealand, the UK and Europe. Factor is part of Gentrack, which acquired the business in 2026. For PPAs, the forecast is built into the pricing run rather than applied afterwards.
Teams can go live as soon as they need to. Factor offers three subscription tiers, starting with the smallest use case.
What is PPA pricing? PPA pricing sets the price paid for a generator's output under a power purchase agreement. It combines a generation forecast, a forward price curve and adjustments for shape, volume, location and credit risk.
How is a PPA price calculated? Forecast generation in each settlement interval is multiplied by the forward price for that interval to give a volume-weighted capture price. Risk premia, certificate value and firming or non-commodity costs are then added or subtracted, depending on the structure.
What is shape risk in a PPA? Shape risk is the risk that a generator's real output profile differs from the profile used to price the contract. Because power is worth different amounts at different times, a wrong profile misprices every interval for the full term.
What is a capture price? A capture price is the average wholesale price a generator earns, weighted by when it actually generates. For solar in high-penetration markets, it usually sits well below the baseload price.
What is the difference between a pay-as-produced and a baseload PPA? In a pay-as-produced PPA, the buyer takes output whenever it is generated and carries shape and volume risk. In a baseload PPA, the seller delivers a flat block and carries those risks, so the price includes the cost of firming.
How do UK and Australian PPAs differ? The method is the same, but the inputs differ. Great Britain settles half-hourly and uses REGOs, while the NEM settles every five minutes and uses LGCs. Location and network costs are also calculated differently.
What software do energy retailers use to price PPAs? Many teams still price PPAs in spreadsheets and in-house models. Purpose-built pricing engines such as Factor build site-level generation forecasting and forward curves into the pricing run, and return a price in about 10 seconds.
How long does it take to start pricing PPAs with Factor? Most teams are live on Factor within two to four weeks.
