Many of the wind and solar plants built in Africa and elsewhere are not owned by the national utility. They are built, owned and run by private companies known as independent power producers, or IPPs, which sell their electricity to the utility under long-term contracts. Programmes that invite and organise IPPs are a common way for governments to attract investment into renewables. This page explains how such arrangements generally work. It is a general explainer: KBB2 Wind Notes is independent, has no involvement in any programme and does not represent any developer, investor or government.
Why governments use IPPs
Building power plants is expensive, and public budgets are stretched. Inviting private companies to finance, build and operate plants lets a country add capacity without carrying all the cost and risk itself. Competition between bidders can also drive prices down.
The power purchase agreement
At the core of every IPP deal is a power purchase agreement, or PPA. It typically sets out:
- who buys the electricity, usually the national utility;
- the price per unit and how it changes over time;
- how long the contract runs;
- what happens if the grid cannot take the power;
- how disputes are settled.
Lenders look at the PPA closely, because it is what turns a project into a reliable stream of income that can repay loans.
How programmes choose projects
Some governments negotiate projects one by one. Others run structured rounds in which developers bid against set criteria, such as price, local benefits and readiness. Structured rounds can be more transparent and easier to compare, but they need careful preparation, including grid studies and standard contracts.
Who carries which risk
- Resource risk: whether the wind or sun is as strong as predicted, usually carried by the developer. See wind measurement equipment explained.
- Payment risk: whether the utility pays on time, often covered by government or third-party guarantees.
- Currency risk: when loans are in one currency and revenue in another.
- Grid risk: whether the network is ready to take the power.
Questions for readers
When you read about an IPP programme, it helps to ask what price the public will pay, whether contracts are published, how local communities benefit and whether the utility can afford its commitments. Answers vary widely, so check current official sources and independent analysis; our Resources page has tips on judging reports.
For the project journey from first idea to operation, see Projects Explained, and for how national conditions affect all of this, browse our Country Notes.