Independent power producers are the dominant developers, owners and operators of renewable energy power plant.  Therefore, both legal access to the grid and standardized mechanisms for power contracting and grid interconnection are necessary to a functioning market and business community.

One outcome of utility restructuring (unbundling the traditional utility into its generation, transmission and distribution components) has been the emergence Independent Power Producers (IPPs) as the primary developers of new electricity generation. 

IPPs tend to use non-recourse project financing, which requires that the IPP be able to contractual determined all the project cash flows and risks - from construction through fuel supply – in order to obtain project financing.

With project financing, the IPP has a much lower equity investment (as low as 20%), which leads to lower power costs for IPP plants due to their lower cost of capital.

In addition, IPPs tend to be more efficient at constructing and operating power plants due to the greater discipline required by the banks providing non-recourse debt to the projects.

In either case, the most essential item that a project developer must obtain in order to secure financing is a long-term power purchase agreement with creditworthy purchaser.

Because most renewable energy projects are relatively small-scale for grid-connected power plants, using standardized power purchase agreements is essential to reducing the transaction cost for both the IPP developer and the utility purchaser and creating a more level playing field between the two parties, which would otherwise be dominated by the utility, especially in monopoly situations.

Also, because the projects are often considered to be small, the IPP developers are sometimes referred to as Small Power Producers (SPPs).   Specific Small Power Producers Programs in 5 Asian countries provide useful experience for the development of similar programs.

The standardized PPAs can be used in concert with any of the promotional policies (feed-in tariffs, RPS, tax incentives) to promote IPPs development of renewable energy power plants.   The can also be strengthened by allowing third-party sales and/or wheeling and banking.

Access to financing is the other essential ingredient for IPP development.  In countries with strong financial institutions, the correct policies and good PPAs will be sufficient to allow most developers to obtain financing.  However, in countries where the financial institutions are weak and/or unfamiliar with renewable energy projects, specific supports, such as capacity building or risk guarantees, may be needed to promote project financing.