Introduction: Protecting What Powers Your Project

In the world of energy project finance, physical assets like panels, turbines, and transformers are the big-ticket items that lenders require sponsors to insure, given their value to the project. But what about the contracts that make those assets valuable in the first place?

Power purchase agreements (PPAs) and similar revenue contracts don’t appear on the balance sheet, yet they underpin the entire economic case for a project. These contracts generate tens of millions in future revenue—any loss or impairment can cripple a project’s value.

This blog explores why PPAs should be treated like the valuable assets they are—and how developers can protect them accordingly.

Tangible Assets Are Insured—Why Not Revenue?

In a typical project, fixed assets like equipment and infrastructure account for 80–90% of reported asset value. These are heavily insured against physical loss, enabling recovery in case of damage or disaster.

But the PPA, which arguably drives most of the project’s long-term value, is left exposed. If the offtaker defaults or terminates the contract, the revenue disappears—and standard P&C insurance doesn’t cover it.

The Revenue Engine Developers Ignore

Most clean energy projects are built around long-term PPAs that span 15–25 years. These contracts lock in a future cash flow that makes the project bankable.

Let’s do the math: a 50 MW solar farm that costs $1.50/W to build will generate nearly $280M in revenue over 25 years:

• Project Cost: $75M

• PPA Price: $0.125/kWh

• → FMV: ~$110M

The fair market value, based on project income, is 50% higher than the cost. And yet, this entire revenue stream is often unprotected.

The Risk Is Real: Credit Matters

Not all offtakers are equal. Many do not post credit support—especially in commercial or community solar contexts. In a tightening credit market, the risk of counterparty default is rising.

Recent downgrades across industries (e.g., Boeing, Insight Investment) underscore the volatility. When a revenue contract vanishes, the project’s fair market value plummets—because valuation models rely on expected income.

What Happens If the Revenue Goes Away?

In traditional casualty events, insurers step in to restore asset value. For PPAs, there’s no such backstop—unless you build one.

If your $75M project is protected against wind and hail but not against a failed offtaker, you’re only managing half your risk profile.  

Tools for Revenue Protection Exist

There are ways to insure your PPA-driven revenue stream—just as you do for your physical plant:

• Credit support agreements or letters of credit

• Third-party credit insurance: This is where companies like Energetic come in, offering specialized protection against offtaker default on ongoing PPA obligations or on amounts due upon termination.

These tools can stabilize project returns, protect equity, and enhance lender confidence.

Conclusion: Protect the Contract Like the Plant

PPAs may be intangible—but they’re no less valuable. Developers already insure their physical assets. It’s time to extend that mindset to the contracts that bring those assets to life.

If you’d insure your $75M plant, why wouldn’t you insure your $110M PPA?

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