Intro to LMP & PPA for Energy Development
- Yoann Hispa
- Aug 29
- 5 min read
Updated: Sep 12
Understanding the financial and operational dynamics of energy markets requires more than just knowing how to build a power plant- it requires insight into how electricity is priced and sold. Two key concepts in this space are Locational Marginal Prices (LMPs) and Power Purchase Agreements (PPAs). LMP data tracks the cost of electricity at specific locations on the grid, while PPAs are contracts that secure the sale of electricity from a project to a buyer over time. Together, they play a critical role in determining the profitability, feasibility, and financing of energy projects. In this guide, we’ll break down what LMP and PPA are, how they relate to each other, and how developers and investors can use this data to make smarter energy decisions.
What is LMP?
In the context of energy development and finance, "LMP data" typically refers to "Locational Marginal Price" data. Locational Marginal Prices (LMPs) are prices that are paid for electricity in specific locations within a power grid at a specific point in time. LMP data is used to track the prices of electricity in different parts of the grid, and to help manage supply and demand for electricity.
LMP data is important for energy developers and financiers because it can help them to better understand the costs and revenues associated with developing and operating power plants. By analyzing LMP data, energy companies can determine which areas are likely to be the most profitable for new power plants, and can make informed decisions about where to invest in new infrastructure. LMP data can also help energy traders to make more informed decisions about when to buy and sell electricity in different markets.
What is a PPA?
A Power Purchase Agreement (PPA) is a contract between an renewable energy developer and a buyer (usually a utility company, corporation or government agency) for the purchase and sale of electricity. The PPA typically outlines the terms of the sale, including the quantity of electricity to be sold, the price per unit of electricity, and the length of the agreement.
PPAs are commonly used in the development of renewable energy projects, such as wind or solar power, where the project developer seeks to secure long-term contracts to sell the power generated by the project. By entering into a PPA, the energy developer can secure a reliable revenue stream for the project, while the buyer can secure a reliable source of renewable energy to meet its energy needs.
There are many different types of PPA's for renewable energy, so the terms of a PPA can vary widely depending on the specific project and the needs of the buyer and developer. Some PPAs may include provisions for the buyer to purchase the energy at a fixed price over the life of the agreement, while others may include pricing mechanisms that allow the price of the electricity to fluctuate with market conditions.
LMP & PPA for Energy Development
Understanding how LMPs and PPAs interact is key for energy developers, investors, and traders alike, because it informs where to build projects, how to structure contracts, and ultimately, how to maximize profitability in a competitive energy market.
How are LMP and PPAs Related?
In the world of energy development, Locational Marginal Prices (LMPs) and Power Purchase Agreements (PPAs) are two sides of the same coin when it comes to pricing and managing electricity. LMPs reflect the cost of delivering one additional unit of electricity to a specific point on the grid at a particular time, factoring in grid constraints and local demand. In other words, LMPs show the real-time value of electricity at different locations, helping developers and traders understand where power is most needed and most profitable.
PPAs, on the other hand, are contracts between power producers and buyers- often utilities or large energy consumers- that set the terms for electricity sales over time, including price, quantity, and duration. PPAs are crucial for financing new energy projects like wind and solar farms because they provide a predictable revenue stream that makes investments more attractive.
The connection between the two comes down to market dynamics. High LMPs in a certain location might make selling electricity on the spot market more lucrative than locking in a long-term PPA, while a signed PPA can influence local electricity demand and even impact LMPs. Essentially, the pricing insights from LMPs can shape PPA terms, and PPA agreements can, in turn, affect local market prices.
How to Find LMP and PPA Data
To find data on LMP and PPA in the context of energy development, there are several sources that can be used, including:
Energy Market Data Providers: Companies like LandGate, Platts, S&P Global, and Bloomberg NEF provide data on electricity prices and market trends, including LMP data for different locations and time frames. These companies may require a subscription or fee to access their data.
Energy Regulatory Agencies: In many countries, energy regulatory agencies publish data on energy markets and electricity pricing, including LMP data. For example, in the United States, the Federal Energy Regulatory Commission (FERC) provides access to LMP data through its eLibrary.
Energy Industry Associations: Industry associations such as the American Wind Energy Association (AWEA) or the Solar Energy Industries Association (SEIA) may provide data on PPA prices and trends for specific energy sources.
Energy Companies: Power producers, utilities, and energy developers may provide information on their PPAs and LMP data in their financial reports or other public disclosures.
Research Papers and Studies: Academic and industry research papers may provide insights into PPA and LMP data and their relationship.
It is important to note that access to this data may be limited and may require a certain level of expertise in the energy sector to interpret and analyze the data effectively. Consulting with experts in the field may also be helpful in understanding and utilizing this data.
LandGate's LMP and PPA Data
LandGate provides a unique platform that incorporates all of the tools and data one would need for the energy industry, including data related to LMP and PPA data. The platform offers a range of applications to support energy developers, investors, and other stakeholders in the industry. Some key features include:
Data on land ownership and land use: LandGate provides data on land ownership and land use across the United States, which can be valuable for energy developers looking to identify potential sites for new energy projects.
Data on mineral rights and royalties: LandGate also provides data on mineral rights and royalties, which can be useful for energy investors and developers looking to acquire rights to extract energy resources like oil, gas, or minerals.
Market analysis tools: LandGate's platform includes tools for analyzing energy markets and pricing, including LMP data for different regions and timeframes.
Project management tools: LandGate's platform also includes project management tools to help energy developers manage their projects and track their progress.
Additionally, users can easily model different pricing structures and the economic impacts related to their projects. For example, Solar PowerVal comes pre-loaded with historical and forecasted price decks in all Wholesale Energy Markets (Hub/LMP on Day ahead and real time), Avoided Energy Cost Price decks used by regulated energy service providers, and retail energy prices (Industrial, Commercial, Residential rates).Â
