Power Purchase Agreements (PPAs)
How PPAs Work
A Power Purchase Agreement (PPA) is a financing arrangement that allows businesses or government agencies to purchase solar electricity with no upfront capital cost. To achieve this, a “host” organization provides unused rooftop, land, or parking lot space as a location for a solar installation. A third party PPA provider pays for the cost of the solar installation and assumes all responsibility for ownership, operation, and maintenance once the solar project is complete. As the host organization, you enter into an agreement to purchase the electricity produced by the system owned by the PPA provider at a predetermined rate per kilowatt-hour, the same unit of measurement on your standard utility bill. A well-structured PPA allows you to reduce electricity costs immediately and realize increased savings over time as grid electricity prices rise. Once the PPA contract period expires (typically 15 – 20 years), you can purchase the system at a reduced price, initiate another PPA, or have the solar installation removed.
Benefits Of PPAs
- No initial capital investment since you only pay for the solar electricity that is produced
- Fixed energy rates. A PPA provides a powerful hedge against volatile electricity process
- No responsibility for system operation or maintenance
- Benefit from solar tax credits, even if your organization has no tax liability to offset. The PPA financier is able to monetize available tax incentives and pass these savings on to you in the form of a lower PPA rate
Key PPA Considerations
PPAs provide access to solar electricity without the burden of owning or operating solar equipment by transferring the initial project cost to a PPA provider. Entering into a PPA requires a detailed contract and thorough credit review. As a result, choosing a PPA will typically extend a project’s timeline relative to other financing options.