ISDA and the Standardisation of Financial PPAs

In December 2024, the ISDA (International Swaps and Derivatives Association) published its model Financial Power Purchase Agreement (FPPA), a key development in the evolution of long-term power purchase agreements (PPAs). These contracts, which have gained prominence in recent years for their ability to provide financial stability in a volatile energy market, allow producers and off-takers to lock in long-term prices and terms, mitigating risks associated with fluctuating energy prices.

Financial PPAs, which do not require physical delivery of energy, are characterised by an agreement on fixed prices and settlement of differences with market prices. Although there have been previous models such as the ISDA 2002 and the EFET PPA model, contracts for financial PPAs did not always fit the needs of the energy sector, which led some companies to develop their own models. However, these approaches lacked the necessary standardisation to facilitate international transactions.

The ISDA FPPA model proposes a global standardisation of financial PPAs, which promises greater legal certainty and simplification of transactions. Its adoption could bring benefits such as homogenisation of contracts, improved transparency and efficiency in risk management, which would facilitate negotiations between parties. Despite the challenges in adapting it to different local regulations and its acceptance by market players, the ISDA FPPA could become the global standard that drives an environment of greater trust and security in power purchase and sale transactions.