A ‘PPA’ is a financial agreement between a developer and a customer whereby the developer organizes the design, permits, finance and installation of a solar energy system on the customer’s property. The developer owns the system and the host simply buys the energy produced at fixed rate that is generally lower than the local utility retail rate. The lower electricity price serves to offset the customer’s purchase of electricity from the grid while the developer receives income from the sales of electricity as well as any tax credits and other incentives that are a byproduct of the system. PPAs can range from 5 to 25 years and the developer is responsible for the operation and maintenance for the entirety of the agreed upon period. At the end of the contract term, the customer is able to extend the PPA, remove the solar system or buy the solar system from the developer.
Because the developer handles any upfront costs involved with sizing, procuring and installation of the system, the customer is able to get solar and see the savings as soon as the system starts operating. Freeing up cash for other business investments.
All performance risks are owned by the developer who is responsible for the systems monitoring, maintenance and operating risks.
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Solar PPAs offer a fixed, predictable electricity cost throughout the whole agreement which can be structured one of two ways. With a fixed escalator plan the price rises and a predetermined rate (often between 2% – 5%), which is lower than the projected utility price increase. With a fixed price plan the cost is maintained resulting in increased savings as the utility prices rise with time. Utility / grid prices may grow faster than the PPA price resulting in increased cost savings over time.
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Developers are in a better position to leverage tax credits to reduce the costs of a solar system, such as Section 48 Investment Tax Credit.
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A solar energy system has in some cases, shown to increase residential property values. The long term nature of PPAs mean they can be transferred with the property allowing the customer a means to invest in their home with little to financial cost.
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While you are under no obligation to purchase the system at the end of the contract, the opportunity is available allowing you to continue to save on energy bills for the life of the system
Beyond saving money and other benefits, engaging in a PPA positions your company as a leader in climate action and highlights your role in mitigating the environmental impact of your activities.
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