What is a Power Purchase Agreement (PPA)?
A Power Purchase agreement is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system, i.e. solar panels, on their property. The third party developer will pay the upfront costs of the solar panels, which includes the operation and future maintenance (O&M) costs. Since upfront capital costs usually deter property owners from developing solar energy, a Power Purchase Agreement helps to overcome this challenge. The simplest way to explain a Power Purchase Agreement to a property owner is that they will pay for the power they use without having to pay for the solar panels and inverters themselves. The Power Purchasing Agreement mechanism helps to make renewable energy affordable.
The host will then purchase the solar electric output from the third-party owner for a predetermined period (usually 5 to 20 years) at a fixed price. Under the Power Purchase Agreement, the fixed price for the electricity is offered at a less expensive price than the building owner would normally pay for the same amount of electricity. Both parties receive benefits under the Power Purchase Agreement – the host customer receives stable, and lower cost electricity, while the system’s owner also acquires valuable financial benefits. The owner may receive renewable energy certificates (REC’s) energy credits, which can be traded in the green-energy credit markets. The owner can also sell the solar technology to the host at a fair market value after they are able to extract the tax value from the system.
Lower Energy Costs through Power Purchase Agreements
A Power Purchase Agreement is different than a Solar Lease, where the host will pay a fixed amount each month for the solar panels, regardless of how much energy the solar panels produce. So, the solar power is technically free, but the host has a set lease payment that usually rises 3 to 4 percent a year. Whereas in a Power Purchase Agreement, the host pays for the electricity their solar panels produce each month. This financial arrangement allows the host customer to receive stable, and lower cost electricity, while the system’s owner acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer. With the growing interest in renewable energy, this financial model allows property owners to develop and produce solar electricity without having to pay the up-front costs.
Associated Renewable is one of the leading companies involved in facilitating Solar Power Purchase Agreements (SPPA). Solar Purchase Agreements allow a host (e.g. property owners) to receive a discounted electricity rate and gives them the satisfaction of using renewable energy. Our Energy Solutions team will help your business or enterprise reduce costs and integrate solar technology optimally through Solar Power Purchase Agreements (SPPA). Contact Associated Renewable to understand how your business can reduce energy costs upfront through SPPAs.