Solar power purchase agreements (PPAs) have become increasingly popular in today’s solar marketplace. However, you’re probably wondering how PPAs work and why more businesses are choosing to take advantage of the benefits they offer. Let’s go over the fundamentals of PPAs and the benefits they provide to help you decide if they’re a good fit for your organization.
What Is a PPA?
Fundamentally, a PPA is an agreement between your organization and an energy provider for access to solar energy at your facility. Your energy partner designs, installs, and maintains a solar energy system at your facility at no up-front cost to you. In return, you pay a fixed rate for electricity throughout the length of the PPA contract, which usually lasts about 20 years.
How Does a PPA Work?
When you enter into a PPA contract, your solar provider owns the solar system. You pay your provider to use the electricity that the solar system generates. Your solar provider performs operations and maintenance (O&M) services to ensure the system runs properly for as long as the PPA contract lasts. However, your provider also receives any solar financing assistance needed to cover the system’s installation costs, including tax credits, net metering programs, and solar incentives.
PPAs work similarly to solar leases, but they do have differences. With a solar lease, you rent the solar energy system itself with your monthly payments. With a solar PPA, your monthly payments purchase the solar system’s energy, not the system itself.
After learning all these facts about power purchase agreements, you may wonder “Are solar PPAs a good deal?” Yes, they are a good deal for commercial solar clients who want to save money on their electric bills but don’t want to own a solar system outright.
Benefits of a PPA
More organizations are choosing to take advantage of PPAs because they offer benefits like:
Fixed Electricity Rates
Today’s energy market is plagued by fluctuating costs, making it difficult to budget energy expenses in the long run. With a PPA, you and your energy partner lock in at a fixed electricity rate, so you can more accurately predict energy expenses over the short and long terms. Because you agree to a fixed rate upfront, you don’t have to worry about surprise energy expenses or the financial risk of traditional energy sources.
A Greater Variety of Options
When it comes to traditional energy providers, you likely only have one choice—maybe two if you’re lucky—in your region. That makes it difficult to leverage your options and find the best value. With a PPA, you can shop around and find a solar energy partner willing to negotiate the best rates. You’re generally working with a private company to source a PPA, so you don’t have to deal with the limitations of a traditional utility company. Because you have more options to choose from, you can research your options and find the partner that best aligns with your efficiency goals.
A Straightforward Solution
PPAs offer one of the simplest ways to gain access to solar energy in today’s marketplace. A PPA allows you to achieve your energy efficiency goals without having to worry about how solar electricity is delivered to your facility. Your PPA provider oversees every step of designing, building, and maintaining your solar infrastructure, so all you have to worry about is paying your fixed rate.
What Happens When a PPA Ends?
PPAs are most frequently contracted from 12 to 20 years. However, you’re probably wondering what happens when that term is up. When a PPA ends, you generally have three options:
- Negotiate the PPA’s terms (usually in the form of a slightly higher rate) and continue the partnership.
- Buy the solar energy system at your facility outright from your PPA provider.
- End the partnership, upon which your PPA provider will dismantle the infrastructure they own.
Connecticut’s Solar Experts
If you’re interested in exploring the possibility of a PPA for your organization, contact the solar experts at Verogy today. We’ll work with you to clarify your energy efficiency goals and develop a solar energy purchase agreement that’s optimized for your needs.