Power Purchase Agreement (PPA)
What is a Solar Power Purchase Agreement?
A solar power purchase agreement (PPA) is a financial agreement where a developer arranges for the 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 generated to the host customer at a fixed rate that is lower than the local utility’s retail rate. This lower electricity price serves to offset the customer’s purchase of electricity from the grid while the developer receives the income from these sales of electricity as well as any tax credits and other incentives generated from the system. The developer remains responsible for the operation and maintenance of the system for the duration of the agreement.
Benefits of PPAs to Solar Customers
No upfront capital costs: The developer handles the upfront costs of sizing, procuring and installing the solar PV system. Without any upfront investment, the host customer is able to adopt solar and begin saving money as soon as the system becomes operational.
Reduced energy costs: Solar PPAs provide a fixed cost of electricity for the duration of the agreement. The fixed price plan, rather than your current energy provider, maintains a constant price throughout the term of the PPA saving the customer more as utility prices rise over time.
Limited risk: The developer is responsible for system performance and operating risk.
Better leverage of available tax credits: Developers are typically better positioned to utilize available tax credits to reduce system costs. For example, municipal hosts and other public entities with no taxable income would not otherwise be able to take advantage of the Section 48 Investment Tax Credit.
Increase in property value: A solar PV system has been shown to increase residential property values. The long term nature of these agreements allows PPAs to be transferred with the property and thus provides customers a means to invest in their home at no cost.