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What is a Power Purchase Agreement?


You’ve made the decision to rein in the expense of utilities for your business and you’re exploring solar. It may have surprised you how many ways there are to finance a solar system. Some businesses pay cash, and usually break even on their investments in 3-4 years – with decades of free electricity rolling in after that. But what if you don’t want to spend money up front? What if you don’t have a tax liability that would allow you to take advantage of Federal solar tax credits? The Power Purchase Agreement (PPA) is an option many companies pursue because it require little to no cash up front and no responsibilities for upkeep or maintenance.

Because each business has different needs, it’s important to consult a solar expert to understand which option is best for you – cash purchase, loan, lease or PPA for example. Please click here if you would like a customized solar evaluation of your building, and one of Green Convergence’s commercial solar consultants can walk you through the best options for you.

With a PPA, you continue to purchase energy, but from a PPA partner at a far cheaper rate than you would pay to the utility. A PPA provider will purchase the system, install it, and set a fixed rate schedule that saves most clients 30% to 50% of what they would be paying the utility. They take the federal tax credit and pass it on to you as part of your energy savings over time. The PPA provider owns and maintains the system, and essentially becomes your new utility provider for a set term (usually 20 years, but it can vary).

The escalator, if any, is also fixed at as little as half of what the utility offers. In other words, as utility rates increase each year 3-4%, the amount you pay for your PPA remains fixed, or increases at a fraction of what the utilities will charge.

Most businesses appreciate the PPA because there are little to no upfront costs. No down payment, permitting fees, installation or activation charges.

Think of a PPA like buying gasoline for your car from a provider who can guarantee a low fixed price, little or no increase over time, and assurance that your car will be fueled when you need it.

What is important to remember is that you are charged the fixed rate based on energy produced, not energy used. This means that if you use less electricity in a given month, you still need to pay for the amount stated in the PPA. To extend the car metaphor, if you don’t drive as far as you assumed, you still have agreed to buy the fuel. So the car owner might agree to buy ¾ of a tank of gas each month at the special rate, to protect against any situation where they are buying more than they’ll use. That’s why the sizing of your solar system is important. Many PPA clients decide to offset a portion of their energy needs, rather than to full amount, knowing that they will still save big on their utility expenses, even if they continue to buy a small amount of energy at full price from the utility. A solar consultant from Green Convergence Commercial services can guide you in how big your system should be based on current and projected energy us. Request a no-obligation solar evaluation today.

Over time, the PPA partner is responsible for monitoring, upkeep, cleaning, repair, and production. Since they own the system and are selling the energy to you, it’s in their interest to maintain the system at peak performance. The PPA partner also keeps any tax credits based on the installation cost. If you sell your building before the term is up, it’s common to transfer ownership of the PPA to the next owner, and this can actually be a benefit to entice a perspective buyer. Alternately, most PPAs allow for the client to buy the system outright after a given period.

Other clients who often use a PPA are not-for-profit or religious institutions because they do not have a tax liability that lets them take advantage of government solar tax rebates. Green Convergence has installed many large scale solar projects for religious institutions, including Grace Baptist Church in Santa Clarita and Shepherd Church in Porter Ranch.

Please schedule a consultation with one of our solar experts, orrequest a no-obligation solar evaluation to see how you can boost your profits with solar.

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