Independent Power Producers (IPPs) generate electricity for sale to utilities and may sell to end users. They do not focus on transmission and may pool resources to negotiate prices. IPP prevalence varies globally, and they lease or build transmission facilities. Utilities benefit from buying energy at wholesale prices from IPPs and can adjust production to meet consumer needs. Government regulation may supervise electricity sales tariffs and safety. Competition from multiple producers helps keep prices affordable.
Independent Power Producers (IPPs) are companies that produce electricity for sale to utilities. An IPP is not a public utility, but focuses on the generation of electricity, not its transmission. Some may sell to end users, depending on energy policies and industry regulations in the areas in which they operate. It is not uncommon for independent energy producers to pool their resources in a collective organization designed to help them negotiate the best prices with the utilities to which they sell.
The prevalence of independent power producers varies around the world. In some countries, they are very common and include private companies, cooperatives and industrial facilities that sell excess energy to the utilities they work with. In other regions, they are rarer and operate at a lower level. Some producer groups focus on small regions, while others may span continents. Many are continually growing by adding new facilities and services to their roster.
Also known as a non-utility generator (NUG), an independent power producer usually does not have transmission facilities. It can generate power using a variety of methods, but must either lease transmission facilities from a utility, or the company may build transmission facilities and maintain them as part of the sales contract with the power producer. These companies generally have contracts with the utility or utilities they work with that spell out how much power they must generate, at what rate, and so on.
For utilities, buying energy at wholesale prices through IPPs and selling it back to consumers can be cheaper than generating power, maintaining a facility and bringing new facilities online. It can also allow utilities to adjust their production to meet changing consumer needs, thus avoiding blackouts and other problems. Independent power producers can integrate the grid to ensure that sufficient energy is always available, even during periods of high demand or periods when generating plants are forced to shut down for maintenance and other reasons.
The sale of electricity by independent power producers can be supervised by the government, which can regulate electricity sales tariffs as well as regulate safety to confirm that these facilities are not operating in an unsafe manner. In areas where electricity is not subject to government regulation, independent power producers point out that the competition generated by multiple producers helps keep prices affordable for end users.
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