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Solar Power Purchase Agreement (PPA)

Adrienne SorensenSeptember 20, 20182020

Solar Power Purchase Agreement (PPA)

A solar power purchase agreement (PPA) is a financial contract that a developer displays for design, permitting, financing and installation of a renewable energy system on a customer’s property at little to no cost.

 

The developer sells the clean power created to the customer at a set rate lower than the utility’s rate. This lower price offsets the customer’s purchase of electricity from the network while the developer gets the income from these sales, tax credits, and additional incentives created from the system.

 

PPAs range from 10 to 25 years and the developer is liable for the operation and maintenance of the system for the duration of the agreement. At the end of the PPA term, a customer may extend the PPA, have the developer remove the system or choose to purchase the system from the developer.

 

Contracts

No or low upfront capital prices: The developer manages upfront costs of sizing, procuring and installing the PV system. The customer can adopt clean energy and begin saving when the system becomes functional.

 

Reduced energy costs: Solar PPAs gives a set and consistent cost of electricity for the duration of the agreement.

 

The PPA is created in two ways. Under the fixed escalator plan, the cost the customer pays rises at a predetermined rate, typically between 2% - 5%. This is often still lower than projected utility price increases. The fixed price plan, maintains a constant price throughout the PPA, which saves the customer more as utility prices rise over time.

 

Limited risk: The developer is responsible for system performance and operating risk.

 

Improved leverage of tax credits: Developers are better positioned to utilize available tax credits to decrease system costs.

 

Potential increase in property value: A PV system has shown to increase residential property values.

 

The long term nature of these agreements permits PPAs to be transferred with the property. This gives customers a means to invest in their home at little or no cost.

 

Financing Options

PPAs means is to prevent upfront capital prices of installing a system and streamlining the process for the customer. A solar lease is an additional method of third-party financing similar to a PPA, but doesn’t involve the sale of electric power. Instead, customers lease the system.

 

The system is owned by a third party while the customer gets the rewards of solar with little or no up-front costs. These third-party financing models have become a trendy method for customers to realize the benefits of clean energy.

 

While both third-party financing models provide perks, purchasing a PV system outright has its own benefits. Anyone thinking of installing a PV system should assess each of the financing options to find the best fit. If you’d like more information, click here.

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