Introduction to solar power purchase agreements

A solar power purchase agreement (PPA) is a financial contract that a developer presents for  design, permitting, financing and installation of a solar energy system on a customer’s property at little to no cost. The developer sells the power created to the customer at a set rate that;s generally lower than the local utility’s  rate. This lower electricity price offsets the customer’s purchase of electricity from the grid 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.
 

Benefits of PPAs 

No or low upfront capital costs: The developer manages upfront costs of sizing, procuring and installing the  PV system. The  customer can adopt solar and begin saving when  the system becomes operational. Decreased energy costs: Solar PPAs provide a set and consistent price of electricity for the duration of the agreement. The PPA is  formulated in  two ways. Under the fixed escalator plan, the price 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 reduce system costs.  

Potential increase in property value: A PV system has shown to increase residential property values. The long term nature of these agreements allows PPAs to be transferred with the property. This gives customers a means to invest in their home at little or no cost.
 

Adopting a PPA

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 popular 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 want to join the solar revolution, go to HahaSmart.com and try our price checker tool. You can see how much a system will cost, and how much you can save over the next 20 years. For more information about solar, don't forget to visit our solar blog section for guides and articles.