Signed, Sealed, and Overpaying: How Power Purchase Agreements Became a Long-Term Liability for US Manufacturers

A power purchase agreement, at its core, is a promise. A facility commits to buying a defined volume of electricity at a fixed or escalating rate over a set term — often ten, fifteen, or even twenty years. When energy prices were volatile and renewable procurement was still maturing, these contracts offered something genuinely valuable: predictability. For finance teams managing multi-year capital plans, that certainty had real worth.

But markets move. Renewable energy costs have fallen dramatically over the past decade. Wholesale electricity prices in many US regions have shifted in ways that were difficult to anticipate at signing. And a growing number of industrial operators are waking up to an uncomfortable reality: the agreement they signed to protect their energy budget is now the single largest obstacle to reducing it.

The Anatomy of an Unfavorable Agreement

Not every long-term PPA becomes a liability. Some contracts age well, particularly those structured with modest escalation clauses and executed in high-price markets. The problem emerges when several conditions converge: a contract signed at peak rates, an escalation clause that outpaces market movement, and a minimum volume commitment that no longer aligns with a facility's actual consumption profile.

This last point deserves particular attention. Many manufacturers signed PPAs based on projected production volumes that the intervening years simply did not deliver. Demand-side changes — whether from operational restructuring, product line shifts, or efficiency improvements — can leave a facility contractually obligated to purchase more power than it can practically use. In those cases, the financial drag compounds with every billing cycle.

Escalation clauses are another common source of hidden exposure. A two or three percent annual escalator embedded in a fifteen-year agreement may have appeared conservative at signing. Applied across a decade of declining spot market prices, that same clause can push contracted rates well above prevailing market alternatives — sometimes by meaningful margins.

Why Facilities Rarely Audit Their Own PPAs

The most striking aspect of this problem is how rarely it gets formal attention. Energy procurement sits at an uncomfortable intersection of legal, financial, and operational responsibility, and in many organizations, no single team owns it comprehensively. Legal teams reviewed the contract at signing. Finance teams process the invoices. Operations teams manage consumption. The strategic question of whether the contract still serves the facility's interests often falls through the gap between all three.

There is also a psychological dimension. Long-term contracts carry an implicit assumption of permanence. Once signed, they tend to recede from active consideration — treated more like fixed costs than manageable variables. That assumption can be expensive.

A structured PPA audit changes that framing. Rather than accepting the contract as immovable, the audit process treats it as a document with specific terms, each of which either creates or destroys value under current market conditions. The goal is to surface exactly where the friction points lie.

What a Thorough Contract Review Actually Examines

An effective PPA audit goes beyond comparing the contracted rate to today's spot price. Several specific provisions warrant close examination.

Volume commitments and curtailment provisions. Does the contract specify a minimum purchase volume? What happens if the facility falls short — is there a penalty, or does the contract include flexibility mechanisms? Some agreements include curtailment rights that are underutilized simply because facilities are unaware they exist.

Change-in-law clauses. Regulatory environments shift. A well-drafted change-in-law provision may allow for renegotiation if new legislation materially alters the economics of the original agreement. As federal and state energy policy continues to evolve, this clause has become increasingly relevant for facilities operating under older contracts.

Assignment and transfer rights. In cases where renegotiation is not available, some facilities have found value in exploring whether their PPA obligations can be transferred to another buyer. This is not universally available, but it is a provision worth examining.

Early termination mechanics. Most contracts include termination penalties, but the structure of those penalties matters. Some are flat fees; others are calculated based on remaining contracted volume and projected market prices. Understanding the actual termination cost — rather than assuming it is prohibitive — is an essential step before any renegotiation conversation begins.

Renegotiation: More Possible Than Most Facilities Assume

Counterparties to long-term PPAs are not always resistant to renegotiation. Developers and energy suppliers have their own portfolio considerations, and a facility that approaches the conversation with a clear understanding of its contract terms and current market alternatives is in a stronger position than most expect.

The most productive renegotiations tend to focus on restructuring rather than termination. Extending the contract term in exchange for a rate reduction, adjusting volume commitments to reflect current consumption patterns, or modifying escalation structures are all mechanisms that can deliver meaningful savings without requiring either party to walk away from the agreement entirely.

Facilities that have completed efficiency upgrades since their PPA was signed are in a particularly interesting position. If documented consumption reductions can demonstrate a structural change in demand profile — rather than a temporary dip — that evidence can support a legitimate case for volume adjustment.

Building a Forward-Looking Energy Procurement Strategy

The broader lesson here extends beyond any individual contract. Industrial energy procurement is not a transaction — it is a strategy. Agreements signed today will define a facility's cost structure for years to come, and the terms that appear favorable in the current market may look quite different under future conditions.

Building in structured review cycles, maintaining internal visibility into contract terms and expiration timelines, and engaging external expertise when significant agreements are being negotiated or renewed are practices that distinguish facilities with genuinely resilient energy strategies from those simply managing invoices.

For facilities currently operating under contracts that no longer serve their interests, the path forward begins with clarity. Understanding precisely what the agreement says — and what it does not say — is the foundation for every productive conversation that follows.

At Changfeng Energy, we work with industrial and commercial clients to evaluate existing energy agreements, identify renegotiation leverage, and develop procurement strategies designed to remain advantageous as market conditions evolve. If your facility has not reviewed its PPA terms recently, that review is likely overdue.