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 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. PPAs typically range from 10 to 25 years and the developer remains responsible for the operation and maintenance of the system for the duration of the agreement. At the end of the PPA contract term, a customer may be able to extend the PPA, have the developer remove the system or choose to buy the solar energy system from the developer.
Benefits of PPAs to Off Taker
There are 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, predictable cost of electricity for the duration of the agreement and are structured in one of two ways: 1) A fixed escalator plan. The price the customer pays rises at a predetermined rate, typically between 2% – 5%. This is lower than projected utility price increases. 2) The fixed price plan. Maintains a constant price throughout the term of the PPA, saving the customer more as utility prices rise over time. The latter option is extremely rare in this inflationary environment.
Limited risk: The developer is responsible for system performance and operating risk.
Better leverage of available tax credits: Private 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.
Market Adoption and Policy
PPAs provide a means to avoid the upfront capital costs of installing a solar PV system as well as simplifying the process for the host customer. In some states, however, the PPA model faces regulatory and legislative challenges that would regulate developers as electric utilities.
Additional Considerations For The Off Taker
Site upgrades: While the developer is responsible for installation, operation and maintenance of a solar PV system, the host customer may need to make investments in their property in order to support the installation of the system, lower the cost of installation or to comply with local ordinances. This might include, for example, rooftop repairs or removing trees that shade the PV system. Possible higher property taxes: While a PV system may help to raise the site’s property value, there is also a potential increase in property taxes when the property value is reassessed. Different states, however, have different policies in regard to these possible property tax increases.
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Get your turnkey solar PPA proposal by e-mailing us your last 12-months electric bills and your desired location of solar system: info@beachcitiessolarconsulting.com
