Solar Power Purchase Agreement, or solar PPA, is a type of third-party solar financing to fund a solar project. The developer will sell the power generated to the customer at a fixed rate and the energy system offsets the customer’s electric utility bill.
Solar PPAs are a zero down, no up-front cost financing option. Instead of paying for the solar project development, businesses can sign a contract with the energy project developer to pay for the use of the energy system over a period of time. Business will pay for the power at a fixed rate, which is lower than the local utility’s retail rate.
Typically, a solar PPA will last from 10 to 25 years, and the developer is responsible for the operation and maintenance for the entire time.
At the end of the PPA contract term, business owners can choose to purchase the solar energy system or remove it.
Steps of Signing a Solar Power Purchase Agreement
According to SEIA, first of all, the developer will install a solar energy system into a facility. When the solar energy system is ready to work, the developer receives money at a fixed rate from the host of the facility and the system provides them with electricity.
If the energy use of the building exceeds the amount it provides, the host will need to get the extra electricity from their regular electricity service and pay at a higher rate.
Benefits of a Solar Power Purchase Agreement
Solar PPAs are risk-free. The building owner does not need to worry about installing a new solar energy system and dealing with the complicated process. He or she can enjoy easy access to cheap, renewable power from the building developer.
Solar PPAs are very beneficial to non-profit organizations. Since nonprofits cannot apply for tax incentives, installing an energy system will be very expensive. However, with a solar PPA, nonprofits can use solar energy as well.
Meanwhile, the developers can own the energy system. These people usually have enough money to afford the solar system. If the host of the building moves out, they can still sell the energy to the next host.
Solar PPAs are also eligible for the federal solar investment tax credit (ITC). It offers a tax credit to offset 30% of the system’s costs. Applying for an ITC can reduce the cost of a solar project significantly.
If your business is interested in signing a solar power purchase agreement for your facility, schedule a free consultation with our financial experts here.