What Is a Solar PPA And How Does It Work?

solar ppa

5-28-2015 What Is a Solar PPA And How Does It Work?

When talking about solar financing, the solar power purchase agreement (solar PPA) is often overlooked in favor of solar loans or leases. However, there are some benefits to the solar PPA, a rarely-discussed solar financing arrangement.

How a Solar PPA Works

It all starts with a homeowner interested in going solar but uninterested in buying or leasing a rooftop system. This homeowner contacts a third-party operator and agrees to host the company’s PV system on his roof. The third-party operator (also called a developer) is responsible for coordinating financing, installing, maintaining, and monitoring the system.

The homeowner signs a solar PPA agreement that generally ranges from 10 to 25 years. This agreement states that the customer will buy the PV system’s electric output from the developer until the contract is expired. The rate at which the customer buys electricity from the system is typically lower than the utility’s retail rate.

Solar PPA Agreement Structure

Solar PPAs are generally structured one of two ways. In the first arrangement, called a fixed escalator plan, the price the customer pays rises at a predetermined rate. This rate usually falls between two and five percent. The other option, a fixed price plan, maintains a constant price throughout the term of the solar PPA.

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Benefits of a PPA

There are several benefits for the host customer. For homeowners looking to go solar without the upfront cost or monthly system payments, a solar PPA may be the way to go. Homeowners also enjoy reduced energy costs because most PPAs provide a fixed, predictable cost of electricity. However, homeowners may still buy some of their electricity from the utility company in the event that the PV system doesn’t generate enough to meet their needs.

There is also a reduced risk associated with a solar PPA. Because the developer is responsible fore the system and its maintenance, homeowners don’t have to worry about it. A solar PPA may actually increase the value of a home, depending on the circumstances.

Solar PPA Challenges

Unfortunately, getting a solar PPA isn’t always easy or possible. In some states, a solar PPA isn’t allowed, or it faces legislative and regulatory challenges. Because the developer provides the homeowner with electricity, some states view it as a utility and reason that the company must follow the rules for utilities.

As solar becomes more and more widespread, it’s likely that states will begin to relax their legislative stance on solar PPAs.

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