What is a solar Power Purchase Agreement?
Power Purchase Agreement is used in RESCO/OPEX model projects. It is a financial agreement between the solar developer and the customer.
In this case
- The solar developer is the company which takes the responsibility for designing, permitting, financing, procuring, installation & O&M of a solar energy system on a customer’s property.
- The developer sells the power generated to the customer at a 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.
Benefits of PPAs to Solar Customers
- No or low upfront capital costs: The developer handles the upfront costs of sizing, procuring and installing the solar PV system. Without any upfront investment, the 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. Under the fixed escalator plan, the price the customer pays rises at a predetermined rate, typically between 2% – 5%. This is often lower than the projected utility price increases. The fixed price plan, on the other hand, maintains a constant price throughout the term of the PPA saving the customer more as utility prices rise over time.
- Limited risk as the developer is responsible for system performance and operating risk.