Power Purchase Agreements for Data Centers: Physical, Virtual and Sleeved

A power purchase agreement is a contract between a buyer and a generator (or its owner) that fixes the price and terms for the output of a specific project over a long period. The U.S. Environmental Protection Agency describes physical PPAs as contracts that buy both the power and the associated renewable energy certificates, typically for 10 to 20 years, and that set commercial operation dates, delivery schedules, under-delivery penalties, payment terms and termination rights.² The certificates matter as much as the electrons: to claim the green power, the buyer must own the project’s certificates or have them retired on its behalf.¹

Data centers sign PPAs for three overlapping reasons: to meet clean energy or emissions goals, to hedge long-term electricity costs, and, more recently, to help bring new generation onto grids that are short of capacity. Those motives lead to different contract structures, and the structure decides how much the contract has to do with the site. This guide covers contract mechanics and risks; our overview of renewable energy procurement and siting covers the wider set of options, including unbundled certificates and on-site generation.

Volumes are large and concentrated. BloombergNEF counted 55.9 GW of corporate clean power deals announced worldwide in 2025, down 10% from the 2024 record but still the second-highest year, with Meta (10.24 GW) narrowly ahead of Amazon (10.22 GW) as the largest buyer.⁵ The number of unique U.S. buyers fell 51% year over year to 33, which BloombergNEF attributed to rising project costs and policy uncertainty pushing smaller buyers out while the largest technology companies kept signing.⁵

The core distinction is whether electricity moves from the generator to the buyer. In a physical PPA it does: the project can sit on the buyer’s property or off site, with power delivered over the grid.² EPA notes that non-utility buyers can generally sign physical PPAs only in competitive electricity markets, and that the generator and the customer must be in the same power market.² In the U.S. that points physical deals toward retail-choice states and markets such as ERCOT, which our guide to ISOs, RTOs and utility territories maps out.

A virtual (or financial) PPA has no physical delivery. The project sells its output into the wholesale market, the buyer keeps buying power from its own utility or supplier, and the two parties settle the difference between an agreed strike price and the market price, typically monthly.¹ EPA calls it a useful option for buyers in traditionally regulated markets that generally do not permit physical PPAs.¹

A sleeved PPA uses the same structure as a traditional PPA, but the utility acts as an intermediary between the project and the corporate buyer, handling the financial transactions and the transfer of energy.³ The Clean Energy Buyers Association describes it as a three-party arrangement among developer, buyer and utility, with the contract passing through the utility so the energy and certificates reach the buyer as a tariff.⁴

Many U.S. data center sites are in vertically integrated utility territories, where the buyer cannot contract with a third-party generator for delivered power. There, clean energy usually comes through the utility. S&P Global Market Intelligence groups green tariffs into three forms (market-based rate tariffs, subscriber-based tariffs and sleeved PPAs) and notes that sleeved PPAs are common in both regulated and deregulated markets, with terms often 10 to 20 years. Utilities generally need state regulators to approve these programs, so that the costs of serving a few large buyers are not shifted to other customers.³

Billing varies. CEBA describes programs that replace the standard energy rate with the PPA’s cost, programs that add a rider as a separate line item, and programs that bill unbundled services such as transmission, distribution, renewable generation and capacity, plus any supply the renewable project does not cover.⁴ Each structure interacts differently with the large-load tariff the campus takes service under, so compare them on total bill impact, not only on the renewable premium.

Utility-mediated deals are also moving beyond wind and solar. In May 2025 the Public Utilities Commission of Nevada approved the Clean Transition Tariff, under which NV Energy buys output from Fervo Energy’s 115 MW Corsac Station enhanced geothermal project and supplies it to Google’s Nevada data centers.⁸ That structure lets a single large customer fund a new firm clean resource without spreading its cost across other ratepayers, and our guide to geothermal power for data centers covers it in more depth.⁸

When the market price is below the strike, the buyer pays the generator the difference; when it is above, the generator pays the buyer.¹ If the buyer’s own retail power cost rises and falls with that market price, the two cash flows offset and the buyer has effectively fixed its cost. EPA lists power price risk, counterparty credit risk and regulatory risk among the main exposures and stresses that the hedge works well only when the markets are correlated.¹

• Basis risk. Norton Rose Fulbright describes it as the price difference between the project’s point of interconnection and the nearest liquid trading hub; a project at a congested node can clear well below the hub.⁶
• Correlation. The same analysis gives the example of a buyer preferring a Pennsylvania solar project in PJM over a cheaper West Texas wind farm because its load correlates better with the former.⁶
• Shape risk. Solar produces mostly at midday, so its generation-weighted capture price can differ sharply from a flat average price.⁷
• Negative prices. Buyers pay the difference in hours when prices go below zero; $0 floors limit this but shift risk to the project, which tends to raise the strike.⁷

Price levels moved in both directions in 2026. LevelTen Energy reported that its North American market-averaged solar PPA price fell 4.8% in the second quarter to $61.40/MWh, the first decline in two years, while wind prices rose 5.5% from the prior quarter and 17.5% year over year.⁹ BloombergNEF also reported that negative power prices are eroding the value of stand-alone solar and wind deals and pushing buyers toward hybrid portfolios.⁵

The 2025 U.S. record was driven by large technology buyers turning to nuclear, hydro and geothermal.⁵ The Meta and Constellation agreement is a clear example: a 20-year PPA for 1,121 MW from the Clinton Clean Energy Center in Illinois, starting in June 2027, with Meta purchasing the plant’s clean energy attributes toward its goal of matching its electricity use with clean energy.¹⁰ Constellation said the deal supports relicensing and a 30 MW uprate and effectively replaces the state’s zero-emission credit support after that program ends.¹⁰

Deals of this kind keep an existing plant running or add capacity to it; they do not necessarily place the data center next to the plant. Where a buyer wants the plant’s output delivered to a campus on site or nearby, the questions change to co-location, interconnection and market rules, which our guides to nuclear and SMR siting and behind-the-meter vs. front-of-the-meter power address.

Because a virtual PPA settles financially, it can be a derivative for accounting purposes. Under U.S. GAAP (ASC 815-10), a derivative has an underlying, a notional amount, little or no initial net investment and net settlement; PKF O’Connor Davies notes that net settlement is generally absent from physical PPAs but often present in virtual ones.¹¹ Deloitte advises both parties to first check whether the arrangement results in consolidation, contains a lease under ASC 842 or contains a derivative under ASC 815.¹² Mark-to-market treatment can put earnings volatility on the buyer’s books, so finance and audit teams should review the structure before signing.

Credit support is the other large term. Generators finance projects against the PPA, so they want creditworthy offtakers or collateral. Utility deals carry similar demands: Nevada’s Clean Transition Tariff requires a long-term commitment matching the life of the new generation, liquidated damages for early termination and security to back performance, which a speculative developer may struggle to provide.¹³ Yale’s Clean Energy Forum notes that information gaps between experienced developers and first-time corporate buyers make negotiation difficult, which is one reason many buyers use advisors.⁷

For a buyer satisfied with annual matching, a virtual PPA anywhere in a liquid market can meet its goals, so procurement rarely rules a site out. It matters more when the buyer wants physical delivery, a utility-mediated deal, a firm clean resource or hourly matching, which our guide to 24/7 carbon-free energy explains. In those cases the serving utility, the market and the local resource mix move up the list of site criteria.

1. 01Identify the serving utility and whether retail choice is available for a load of this size.
2. 02Ask the utility whether a green tariff, sleeving program or customer-specific clean energy agreement exists or could be filed, and how long approval takes.
3. 03If a virtual PPA is planned, check which hubs are liquid and how the buyer’s load prices correlate with them.
4. 04Confirm who will hold the certificates and how unmatched hours are supplied and billed.
5. 05Model the PPA alongside the site’s electricity rates and capacity costs, not separately.
6. 06Have counsel and auditors review contract structure, credit support and accounting treatment.

Clean energy procurement is one line item among many when we screen a site, alongside capacity, timing and cost. If you are comparing locations with procurement goals in mind, you can get a site reviewed.