Definition
IPP is the acronym of Independent Power Project.
IPP may also be used for Independent power Producer.
In both cases IPP refers to non-public utility company investing or operating power generation facilities.
Comments
Until the years 1980s, the power generation facilities were mostly run by public entities in each country regardless if they were gas fired, coal fired or even more if nuclear powered.
Since this period, the constant growth of energy consumption in all countries requested to local governments to increase production capacities accordingly.
But the amount of capital expenditure required to build and operate these additional power generation facilities were not necessary easy to finance, especially in emerging countries.
Therefore the local governments of these emerging countries offered to private investors to opportunity to build and operate new power plants.
This decision was even facilitated when the power consumption increase was mainly due to the industrial development with greenfield plants to be energized.
In this case, the new build power plant will have few industrial customers with whom it will be possible to sign a power purchase agreement (PPA) without having any political impact on the domestic consumers.
In countries developing power intensive industry such as oil and gas and petrochemical in the Middle East, most of the power generation is driven by the industry.
In these countries, the oil and gas resources are available “for free” in the ground, thus the production costs is mostly driven by the energy costs.
In addition several oil and gas and petrochemical processes need quantity of steam, like crackers. This steam may be collected for energy production.
As a result the emergence of these factors over the last 20 years favored for the local government the conditions to create a private energy market.
To do so, these emerging countries adopted new regulations to encourage private investors to build and operate independent power projects (IPPs) compensated by long-term power purchase agreements (PPAs).
These new build power generation facilities were then connected to the main power system through the local grid.
IPPs offered an easy solution to provide a quick response to the fast growing energy demand in many emerging countries.
In addition to the power, the greenfield IPPs have contributed to modernize the local regulations to help private sector and public sector to co-operate in large projects and over a long period of time.
They also contributed to develop new technologies to improve energy efficiency and reduce environmental impact since the private investors are compensated by constant fees over long term contracts.
