POWER PURCHASE AGREEMENTS
POWER PURCHASE & SOLAR SERVICE AGREEMENTS
The financial case for large-scale renewables is better than ever. Solar energy offers savings over future electricity market prices and hedge against long-term price fluctuations while helping forward-looking companies meet sustainability goals. Because innovative no capital cost financing arrangements such as Power Purchase Agreements or Solar Service Agreements are relatively new to business owners and often complex, Norwich Solar Technologies helps companies streamline and expedite adoption of commercial-scale solar energy.
Power Purchase Agreements Defined
A Power Purchase Agreement (PPA) is a financial mechanism that allows a solar purchaser or “offtaker,” as they are called in the industry, to obtain many of the benefits of solar photovoltaic (PV) power without buying a PV system. In a PPA, a solar purchaser buys power from a project developer at a predetermined rate for a specified length of time without responsibility for system ownership or operation and maintenance.
The project developer procures, builds, operates, and maintains the system. The solar PV system may be located on the purchaser’s property (onsite PPA) or remotely (offsite PPA). In both situations, The PPA offers the financial benefits, and sometimes the environmental benefits, of solar power to the offtaker whether or not the electricity provides the offtaker’s power needs directly.
How a PPA Works
1. The offtaker buys power at a negotiated PPA rate ($/kWh) for a predetermined term without owning the solar PV system. (This PPA rate is usually significantly less than their current utility rate.)
2. The solar project developer or a tax equity investor owns the system.
3. The developer has responsibility for all permitting, installation, maintenance, and decommissioning.
4. PPA contracts generally are for 20 to 25-year terms, approximately the anticipated lifespan of solar PV modules. PPA contracts generally stipulate the offtaker’s options at the end of the contract, which usually includes contract termination and system removal, contract renewal, or the option to purchase the system at fair market value. (Offtakers are often given the option to purchase the system at various times before the end of the contract.)