Independent power producers, or IPPs, are privately owned power plants. IPPs operate outside of the traditional utility grid owned, maintained and regulated by a public entity. This is why they are also known as non-utility generators.
All non-utility/nongovernment power producers are classified as IPPs. Independent power producers are fueled by a wide assortment of fossil fuels and, increasingly, renewables. The fuel an IPP relies on depends on a variety of factors, including the facility’s age and location, start-up and operation costs, politics and fuel availability. This means that IPPs operate on a number of different fuels. Natural gas and nuclear power are popular due to the time period in which IPPs were first established. Renewable energy, such as that generated by solar and wind cooperatives, is produced and sold under the IPP model.
Cogeneration is also used by IPPs. The prevalence of cogeneration among IPPs in the United States is due to the regulations that first allowed independent power producers to sell power. Because of cogeneration’s efficiencies, it is sold to the utility and/or end users at a preferred rate compared to other methods of power production under these regulations.
Some IPPs are developed with the sole purpose of providing power to the company that builds the power plant. Most are developed to profit from transforming energy and delivering it into the grid. This second category of IPPs sells their product via power purchase agreements (PPAs) with either utilities (wholesale) or individual businesses (retail).
Adding IPPs to an energy market adds to the competition of the market in a specific region, lowering the cost of power for consumers. IPPs have more readily available funds than publicly-owned utilities for building power plants and updating infrastructure as demand grows. In the United States, the entry of renewable energy, environmental regulations and public education on the effects of power usage have affected the profitability of traditional non-utility generators. However, the demand for power in developing countries and innovations that pair fossil-fueled power plants with renewables to balance the power supply are helping balance the market.