Solar financing - Power Purchase Agreements (PPAs)
A Power Purchase Agreement is a long term agreement where the business or organization agrees to purchase all of the electricity generated by a solar system at a contracted rate. The PPA provider installs, maintains, and operates the solar system – the commercial entity only pays for the power that is generated and usually at a small discount from what is charged by the current utility company.
A PPA can be a low risk option to finance a system and due to some vagaries in the Tax Code, the ONLY way for a non-profit or governmental entity to receive an indirect advantage from the tax benefits for solar PV. For commercial businesses looking for the highest possible return on investment, one of the other previously mentioned options is often a better choice as the system is paid off sooner. Also, due to the complexities and ongoing monitoring involved, most PPA funders will only consider projects that cost at least $300,000 and prefer ones much larger than that.
Typical Features of Solar Power Purchase Agreements (PPAs):
- Power Purchase Agreements require no upfront investment or maintenance costs
- Proposals vary based on the underlying economics, but typically the contract lasts for 15 to 20 years and may have a 3% annual rate increase escalator
- At the end of the contract, a new PPA can be negotiated or the system purchased.