What is a Solar Power Purchase Agreement
A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system's electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable, and sometimes lower cost electricity, while the solar services provider or another party acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer.
How do SPPA’s work?
Figure 1 below illustrates the roles of all participants in an SPPA.
A host customer agrees to have solar panels installed on its property, typically its roof, and signs a long-term contract with the solar services provider to purchase the generated power. The host property can be either owned or leased (note that for leased properties, solar financing works best for customers that have a long-term lease). The purchase price of the generated electricity is typically at or slightly below the retail electric rate the host customer would pay its utility service provider. SPPA rates can be fixed, but they often contain an annual price escalator in the range of one to five percent to account for system efficiency decreases as the system ages and inflation-related costs increases for system operation, monitoring, maintenance, and anticipated increases in the price of grid-delivered electricity. An SPPA is a performance-based arrangement in which the host customer pays only for what the system produces. The term length of most SPPAs can range from six years to as long as 25 years.
Our solar services provider functions as the project coordinator, arranging the financing, design, permitting, and construction of the system and also provides warranties for system equipment.
AGE Technologies will design the system, specify the appropriate system components, and will perform the follow-up maintenance over the life of the PV system. To install the system, the solar services provider might use an in-house team of installers or have a contractual relationship with an independent installer. Once the SPPA contract is signed, a typical installation can usually be completed in three to six months.
The utility serving the host customer provides an interconnection from the PV system to the grid, and continues its electric service with the host customer to cover the periods during which the system is producing less than the site's electric demand.
What are the advantages of a Power Purchase Agreement
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 host 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.
Limited risk: The developer is responsible for system performance and operating risk.
Potential increase in property value:
A solar PV system has been shown to increase residential property values
. The long term nature of these agreements allows PPAs to be transferred with the property and thus provides customers a means to invest in their home at little or no cost.
Site upgrades: While the developer is responsible for installation, operation and maintenance of a solar PV system, the host customer may need to make investments in their property in order to support the installation of the system, lower the cost of installation or to comply with local ordinances. This might include, for example, rooftop repairs or trimming trees that shade the PV system.
Possible higher property taxes: While a PV system may help to raise the site’s property value, there is also a potential increase in property taxes when the property value is reassessed. Different states, however, have different policies in regards to these possible property tax increases.