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Understanding How Solar Power Purchase Agreements Work

By July 20, 2021February 15th, 2022Blog

One of the financing options that Coldwell Solar offers customers is called a PPA or Power Purchase Agreement. This is a unique kind of contract designed specifically for projects like a solar installation and helps make it easier for owners to establish a solar system while staying within their budget.

PPAs are enabled by state programs, and California’s robust PPA regulations allow owners to arrange for a solar installation at little to no upfront cost, while letting them benefit from the energy produced for years to come. Let’s take a closer look at how a PPA works, and how to know if it’s the right choice for your commercial solar project.

The PPA Process Explained

A PPA is like a leasing arrangement (another financing option that Coldwell Solar provides for interested clients), but with terms specifically designed for an electricity generating project. In a PPA, a third-party contract with an owner to install a solar system on their property. It’s best broken down into the three primary roles:

Developer: The developer, a solar energy company in California like Coldwell Solar, offers financing and arranges for the design and construction of the solar system at the chosen site. As with other solar installations, the design can be customized according to the size of the site, the needs of the host, and a variety of other considerations. Generally speaking, the developer takes care of the details of the installation process.

Host: The host provides the site to construct the solar installation and pays to receive power from the installation when it becomes operational. With a PPA, the host often has a specific site and facility in mind that can benefit from solar power. A host may also investigate PPAs to help meet specific sustainability goals or requirements in their industry.

Utility: The utility company provides standard electricity services that can be used to supplement a solar installation during high demand. During peak production for the installation, the system may also provide excess electricity to the utility’s grid in return. If net metering credits or similar incentives are applicable, the utility will provide these to the host directly.

PPA Terms

The PPA will set specific terms for how solar energy is managed and paid for. The host and developer will agree to certain rate that the host will pay the developer for receiving electricity from the installation. The type of rate can vary: It may be set under a fixed escalator plan to slowly rise according to a predetermined schedule, for example. This offers a variety of potential payment options depending on the current market and what works for the host.

Solar PPAs can also vary in how long they last, but they are generally long-term arrangements that will last for some or all the life cycle of the solar installation. Typical PPAs last for around 10 to 25 years. At the end of the arrangement, the host may be given the opportunity to purchase the installation in full, or potentially extend the PPA if it was a shorter contract.

Significant PPA Advantages

A PPA for commercial and industrial solar in California offers several advantages for the host, especially when it comes to flexible financing options:

Low or no upfront costs for installation: Under a PPA, the developer assumes the costs associated with installation, such as sizing and designing the system, sourcing the components, and constructing the system. This allows a host to arrange for a solar installation on an ideal site without needing to reallocate budgets or find extra cash for the project. This is also ideal for starting a solar system immediately instead of waiting – an installation that breaks ground in 2021, for example, may quality for tax credits or other incentives that an installation begun in 2022 would not.

Rate savings: A typical PPA sets rates at an advantage for the host compared to how electricity rates are expected to rise in the future. In other words, the host tends to pay less for their solar electricity than they would paying the utility directly. Since PPAs are long-term contracts, they also provide a fixed or very predictable rate schedule that hosts may prefer to the variable or time of use plans offered by utilities.

Low risk: Since the developer takes care of the details and operation of the solar installation, there is little risk for a host to start a solar project. This makes it easier for organizations to seek buy-in and convince decision makers to plan for an installation and reduces concerns about future responsibilities.

The developer can also benefit from a PPA installation: Under these plans, the developer often receives a variety of incentives associated with the solar installation (specific tax credits will still apply to the host, allowing them more opportunities to save).

PPAs and Maintenance

Under a PPA, the developer takes care of solar system maintenance and routine care so that the host doesn’t need to worry about these details, either. For example, with agricultural solar energy systems operated under a PPA, maintenance may include cleaning, setting up barriers to keep livestock away, and keeping all nearby plants trimmed so that the solar panels still have plenty of access to sunlight.

Maintenance will also include checks on wiring, inverters, fasteners, and other important components to watch for any damage or potential failures. The developer will handle repairs or replacements needed to keep the system healthy and operational. If the host does decide to buy the installation at a future date, the developer can continue to offer these maintenance services in an ongoing contract.

Is a PPA Right for You?

Are you interested in a PPA financing option for commercial solar energy solutions in California? Start with a consultation with Coldwell Solar. We can discuss how feasible a solar installation is for a site, and what a PPA would look like for a particular project. When the time is right, our commercial solar company can design and install the solar solution that’s the best fit for your needs.

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