By AGILE Consulting Engineers, Solar PV and Battery Energy Storage Systems (BESS) specialists.
Grant funding and long-term offtake contracts get treated as separate conversations far too often, one for the government relations team, the other for finance. In practice, the two do different jobs in the same capital stack, and a project that only thinks about the grant tends to leave a financing gap that a well structured Power Purchase Agreement (PPA) could have closed. Understanding how these two mechanisms actually interact is genuinely useful groundwork before either conversation starts.
Table of Contents
- Two Different Funding Tools, One Capital Stack
- What a PPA Actually Is
- How Grants and PPAs Play Different Roles
- Why a PPA Can Make a Project More Bankable
- Practical Considerations When Structuring Both Together
- Where Storage Fits Into This Picture
- What to Do Next
- FAQ
Two Different Funding Tools, One Capital Stack
A renewable energy project’s capital stack is simply the combination of funding sources that together cover its total cost: grant contributions, debt, equity, and sometimes vendor or supplier financing. Grants and PPAs sit in different parts of that stack. A grant is typically a contribution toward capital cost or feasibility work, awarded competitively or against set eligibility criteria, and it does not usually cover the full cost of a project on its own. A PPA is not funding in that direct sense at all, it is a revenue arrangement, but because it defines who will buy a project’s output and at what price over a long period, it directly affects how much debt and equity finance a project can attract for the remaining capital it needs. Treated together rather than separately, the two can meaningfully change what is financeable.
What a PPA Actually Is
A Power Purchase Agreement (PPA) is a contract governing the sale of electricity, and in the Australian corporate renewable energy context it typically runs for ten to fifteen years, according to industry guidance published by the Business Renewables Centre Australia (BRC-A) and ARENA. Under a corporate PPA, a business agrees to purchase electricity, and often the associated Large-scale Generation Certificates (LGCs), generated from a renewable source such as a solar or wind project, at an agreed price or pricing structure. There are broadly two structures in the Australian market: a wholesale, or financial, PPA where the buyer contracts directly with the generator without physically taking delivery of the specific electrons, and a retail intermediated PPA where a retailer sits between the generator and the buyer. The BRC-A itself was established in 2018 with funding support from ARENA and the New South Wales and Victorian governments, specifically to help grow the corporate PPA market in Australia, which is a reasonable indicator of how central this mechanism has become to project financing here.
How Grants and PPAs Play Different Roles
Grant funding is generally most useful earlier in a project’s life or against a specific, discrete cost, funding a feasibility study, offsetting a portion of capital expenditure, or supporting a defined technology demonstration. It reduces the amount of capital a project needs to raise from other sources, and in some cases improves a project’s internal return enough to clear an investment hurdle it would not otherwise meet. A PPA, by contrast, is what gives lenders and equity investors confidence in the revenue side of the project once it is operating. Because a PPA sets out price, volume, and term over an extended period, it turns an otherwise uncertain future revenue stream into something a financier can model and lend against. A project with a meaningful grant contribution but no offtake certainty can still struggle to raise the remaining debt it needs, while a project with a strong PPA but no grant support simply has to fund a larger share of its capital cost from debt and equity alone.
Why a PPA Can Make a Project More Bankable
Securing an offtake agreement is often treated as a prerequisite for advancing a renewable energy project to construction finance, because a PPA’s term, the creditworthiness of the counterparty, and its price and volume provisions are what determine whether a project’s cash flows are sufficient to service debt and deliver an equity return. The Clean Energy Finance Corporation (CEFC) has shown willingness to finance projects that have not secured full offtake through long-term contracted PPAs, including as a co-financier in the $588 million, 270 megawatt Sapphire Wind Farm in northern New South Wales alongside the Commonwealth Bank, Sumitomo Mitsui Banking Corporation, and EKF, Denmark’s export credit agency. That kind of participation demonstrates that PPA coverage is not always an absolute condition for finance, but it remains the dominant pattern, and industry commentary on established renewable energy markets points to a typical debt to equity ratio around 70:30, generally underpinned by long-term PPAs and the steady revenue they provide.
Practical Considerations When Structuring Both Together
When a project team is genuinely trying to combine grant funding with PPA-backed finance, several practical issues need attention early rather than late. Grant conditions sometimes affect asset ownership, reporting obligations, or timing in ways that need to be checked against the PPA’s own term and structure, so the two documents should not be negotiated in isolation from each other. The technical and financial modelling that supports a grant application, energy yield, capacity factor, and cost estimates, is often the same modelling a financier or PPA counterparty will want to see, so building this evidence once, to a standard that satisfies both audiences, is more efficient than producing separate versions for each. Timing also matters: a PPA counterparty will want reasonable certainty that a project will actually be built, while a grant funding body will often want confirmation of a viable route to finance, which means the two processes tend to move forward somewhat in parallel rather than strictly one after the other.
Where Storage Fits Into This Picture
Battery Energy Storage System (BESS) projects add another layer to this picture, since storage revenue can come from multiple sources, including network services, wholesale price arbitrage, and in some structures a tolling or capacity style agreement that functions similarly to a PPA without being a simple energy offtake contract. Grant programs that support storage alongside generation, and revenue contracts structured around a battery’s specific services, both need technical input to define what the asset can actually deliver, since an overstated capability claim in either the grant application or the contract negotiation creates risk that shows up later in operation. This is one of the more genuinely technical corners of combining grant and offtake based funding, and it benefits from engineering input that understands both the equipment and the commercial structure being proposed around it.
What to Do Next
Businesses weighing up a project that could realistically draw on both a grant and a PPA are generally better served by mapping the full capital stack early, rather than pursuing a grant application and a PPA negotiation as two disconnected workstreams. This is the point where an early feasibility review can strengthen both conversations at once, since the same technical evidence tends to matter to a grant assessor and a PPA counterparty alike. AGILE Consulting Engineers works with project teams on this technical groundwork before either process gets underway. Grant guidelines, PPA market conditions and financing structures all change, so always confirm current program details and seek independent financial and legal advice before committing to a specific funding or contracting structure.
FAQ
Can a project receive both a grant and use a PPA for financing?
Yes, this is a common structure. Grant funding typically reduces the capital a project needs to raise, while a PPA underpins the revenue certainty that lenders and equity investors look for when financing the remaining capital cost.
What is the typical length of a corporate PPA in Australia?
Corporate PPAs in the Australian market typically run for ten to fifteen years, according to industry guidance from the Business Renewables Centre Australia and ARENA, though exact terms vary by project and counterparty.
What is the difference between a wholesale and a retail intermediated PPA?
A wholesale, or financial, PPA is a direct contract between the buyer and the generator without a retailer intermediary, while a retail intermediated PPA has a retailer sitting between the generator and the buyer managing the physical electricity supply relationship.
Does a project need a PPA to get financed?
Not always, but it is the dominant pattern. Financiers including the CEFC have supported projects without full PPA-backed offtake in specific cases, but a PPA generally remains a significant factor in how much debt a project can raise and on what terms.
Does grant funding reduce how much PPA-backed finance a project needs?
Generally yes, since a grant contribution lowers the total capital that needs to be raised through debt and equity, which in turn can reduce the scale of financing that needs to be supported by PPA revenue.
Do battery storage projects use PPAs in the same way as solar or wind projects?
Not always in the same form. Storage projects can be supported by tolling or capacity style agreements alongside or instead of a simple energy offtake PPA, reflecting the multiple revenue streams a battery can access.
