PPAs vs. Prepaid PPAs: What You Need to Know
If you need someone to help guide you through the solar purchasing process and you’re looking for a solution that fits within your environment, Solar Gain is here to help. Our team has the experience necessary to not only point you in the right direction, but shepherd your entire solar installation so that you can start reaping the benefits right away. In this blog, we’ll talk about solar power purchasing agreements (PPAs) and how your team can make an informed decision for your unique facility.
What is a Commercial Solar PPA?
Have you ever rented an apartment? Think of solar leases and prepaid solar PPA in a similar way. They involve entering into an agreement with a specific solar leasing company entitling you to the benefits of the system for the duration of the contract. The company leasing you the solar system is entitled to the rebates, tax breaks, and all other financial incentives available with a solar panel system. Although customers won’t see the same sort of incentives, they can still benefit thanks to lower electricity rates.
Solar PPA vs. Lease: What’s the Difference?
Although both terms are used in concert with one another above, there is a key difference between the two. Rather than paying to rent a specific solar panel system, a solar PPA involves purchasing the power generated by the system itself at a set price (based on per-kWh). A solar lease entails paying a fixed monthly fee that’s calculated by using the estimated amount of electricity that the system will produce.
What is Included in a Solar Lease/Solar PPA Contract?
The terms included in such an agreement might initially make customers wary—the process of purchasing a system outright does seem more straightforward. However, there is more room for flexibility if the status of the person renting the system changes suddenly. Common terms included in solar leases and PPAs include:
- Monitoring
- Buying the system
- Moving properties (commercial or residential)
- Performance and maintenance
- Term length
There’s so much more in play than simply evaluating system performance. Make sure that you’re acutely aware of what kind of contract you’re signing up and how much leeway and flexibility you have in the event that your circumstances suddenly change.
What financing option is right for you and your solar system? Finding out what makes sense for your budget can be difficult if you don’t have access to all of the options at your disposal. Get the help you need with Solar Gain.
What About Prepaid PPAs?
Sometimes, a regular lease or PPA might not the financial option that makes sense for your facility. Prepaid PPAs allow developers to attract financial partners that can use the tax benefits that are otherwise forfeited by nonprofits, schools, and places of worship (and any other facility excluded by the ITC). The backer of the solar project effectively owns the system itself, but can still sell the energy generated to the non-profit.
We know that renewable energy might be a big buzzword in your industry, but do you have the resources at your disposal to truly understand the implications? You need someone who’s experienced enough to help you actually navigate what it is that you’re attempting to accomplish. At Solar Gain, we do more than installation, operations, and maintenance. Our team works tirelessly from the jump to make sure your solar energy solution makes sense for you financially, helping to reduce your electric bills and save you money while still providing quality solar power that keeps you up and running.
Don’t let sky-high utility rates and a lack of knowledge surrounding tax credits combine to keep you down—choose a provider you can count on, every single step of the way.
What solar financing option works best for you? Whether a lease, PPA, or prepaid PPA fits best with your budget, it’s time to work with a solar provider that knows how to deliver what you’re looking for. Don’t let an outdated system or costly utility bill keep you from succeeding—get the powerful, customized solar solution your facility needs to operate more efficiently, and reach out to Solar Gain today.
Inside the Solar PPA
Remember that the PPA works a lot like a lease, with one exception. The homeowner is buying power from the financing company and is not leasing or renting the panels on the roof. This is a very distinct but important difference. Here’s more on how the power purchase agreement works.
Before anything else happens, the homeowner sits down with the representative of the company providing the PPA, and they look over the contract together. Any questions are addressed, clauses updated if necessary, and the homeowner has time to consider the decision before signing.
Your roof is deemed sound
Before solar panels can be installed, the roof must be up to par. This means it must be of suitable quality and soundness – a roof that is in need of replacement is not suitable for a solar installation. If repairs are needed, installation will be put on hold until the roof is repaired or replaced.
Any required permits or permissions are obtained
Some cities or municipalities require permits for the solar system; how many permits and what kind of permissions depends upon the area. Those who live in under the rules of a homeowner’s association might also need permission from the HOA in order to have solar panels installed.
The system is designed and installed
The company designs a solar array suitable for your particular roof and shading, chooses the best place on the roof for installation, and either sends out their own team or hires a subcontractor to complete the work.
The system generates power, and you pay reduced rates
The system starts generating power, and you immediately benefit by taking advantage of reduced rates. In most cases, these rates are substantially lower than what you were paying before the solar panels were installed.
The company takes care of interconnection
If there is an interconnection fee or other requirements in order to allow power to be sold back to the grid, this should be taken care of immediately. Savvy homeowners can make sure that the company handles the interconnection work.
Sometimes the array generates extra energy
When the system produces extra energy, homeowners who have been demanding about an advantageous contract can sell that extra energy to the utility company, and possibly make money on the PPA.
The company maintains and monitors the equipment
The homeowner just sits back and enjoys the savings, while the company handles everything else. Maintenance is the company’s responsibility, but it is the homeowner’s responsibility to get in touch immediately if they notice something looks wrong. The company will monitor the equipment, though homeowners might be able to get a clause in the contract that says they have access to the monitoring results as well.
Utility rates rise, but your rates remain steady
As the rates of electricity go up, the rates of the PPA stay the same, saving potentially thousands of dollars for the homeowner. Even if the PPA contains an escalator clause, it is possible that rates through the utility will rise much higher than the escalator payments.
The end of the agreement nears – you explore the options
At the end of the contract, it’s time to make a decision: Make new arrangements for the solar array (if the contract allows), plan on a new PPA agreement, or let the company remove the solar panels. Contracts are typically long-term, so there is usually plenty of time to make a decision.
Extra Energy: Earn Cash for Your Power
Some states offer net metering, which means that any energy produced by the solar panels in excess of what you actually use can be sold back to the utility for a fee. There is also the option of Solar Renewable Energy Certificates (RECs), which are generated with each megawatt-hour the system produces. In most PPAs, the company that owns the system retains the RECs. However, some contracts might allow homeowners to claim the RECs, which can then be sold. In some states, the RECs can add up to several hundred dollars each, and a home’s solar panels might generate several of them each year.
The way net metering or RECs work depends greatly upon the state or even the city.
Insider’s Guide to PPA Contracts
Understanding the PPA contract is a must. Before signing on the dotted line, here are several points homeowners need to know, as well as questions they should ask, about how their PPA contract works.
Do you know what you’re getting?
Do you know exactly what will be installed?
Though the equipment will not belong to you, it will be placed on your roof, so it pays to know what will be up there. In addition to knowing the manufacturer, technical specifications and the like, it’s very important to know how the array will be installed, the size of it, where it will be installed, etc.
Do you know if there is a take-or-pay clause?
What if the utility does not want to buy any excess electricity produced, or buys it at a steeply discounted rate? The contract should spell out if you will have to pay for only the electricity you use or if you must pay for all the electricity produced.
Do you know what the energy prediction is?
How much power will the solar array generate? The contract should say what the company believes will be produced every year, given the factors that make your particular array and home site unique.
Do you know who covers interconnection charges?
“The best PPAs would cover the hook-up (interconnection) charges that cover the cost to tie in the production to the power lines that enable the homeowner to sell excess power,” Kowal said. “Otherwise, what happened in Nevada recently could affect how much the homeowner makes from the sales. Nevada recently lowered the amount that homeowners receive for solar power while at the same time, increasing the amount for monthly charges to hook up with the power lines that their homes are connected to in order to sell power. A double-whammy to watch out for!”
Do you know if there is a fixed price or escalator?
The fixed price plan will cost a bit more initially than the escalator plan. However, the escalator plan can drive up annually, usually by 2 to 5 percent, which means that over a long period of time (such as a 20-year agreement), the homeowner might wind up paying the same or even more as what the utility company would charge a neighbor who did not have solar panels.
Do you know if you can get monitoring data?
Having the data that proves the system is working as expected is very important, though some PPA contracts call for that data to be gathered and scrutinized by the company, not the homeowner. It might be a good idea to request a clause in the contract that states you will have access to the monitoring data as well.
Do you know the payment schedule?
The bill for the solar power might be separate from the bill sent from the utility company. The contract should explain exactly how this works, including whether you will receive one or two bills, when they will be sent, and when they will be due.
Do you know if the rates are competitive?
“Homeowners need to balance the rates of a long term PPA over what the spot market is expected to be over the same period for the power generated by their solar panels,” Kowal said. “Local utilities (or even some co-ops) often need to file their expectations with the state public utility commission.”
Do you know what happens if you sell your home?
Look for an option in the contract that allows the original homeowner to transfer the PPA contract to the new buyers. If this is not possible, make certain what the rules are for selling your home when you have a PPA in place.
Do you know what happens when the contract ends?
There might be a purchase option at the end of the contract; find out how the pricing will work when that does happen. Some companies will plan to decommission the system and remove it from the home. if that is the case, ensure the contract states explicitly how they will repair the roof after removal, and how the company will handle any damage to your property as a result of the removal.
The Future of PPA
While third-party financing models are still popular, they have seen a decline in recent years, according to the Solar Energy Industries Association. For instance, Colorado first entered the third-party financing solar energy market in 2010; by the middle of 2011, third-party installations made up for 60 percent of all residential solar power, and by the middle of 2012 that number had risen to 75 percent. This played out in much the same manner across other states that allowed PPAs.
In states like New Jersey, where 83 percent of residential solar systems installed over the last four years are third-party owned this method of financing is still going strong, however, this is not the case across the nation. Take for instance California, the country’s leader in solar. In 2013, 72 percent of residential systems were financed by third party. By 2017, that number had dropped to 32 percent. The future of third-party financing might be in the commercial sector. In 2017, more than half of all non-residential projects in the U.S. were third-party owned, an increase from previous years.
Neverless, PPA or lease will continue to be a viable option, especially for those homeowners who prefer to enjoy the benefits of solar power but don’t want to deal with the hassle of figuring out all aspects of system ownership.
Types of power purchase agreements
Physical PPAs
Since the origin of the corporate renewable energy market, Physical Power Purchase Agreements have been leading. It is a traditional option; a PPPA has a long-term agreement between a corporate customer, an energy supplier, and a renewable electricity generator. The role and responsibility of the energy supplier are to build, own and maintain the project while selling electricity back to the customer at a fixed rate per unit. The rate is measured in dollars per megawatt-hour. This price is estimated to be typically lower than the local utility’s.
Virtual PPAs
VPPAs are known as Virtual Power Purchase Agreements, which are the latest in the market and have attained popularity in the recent few years. It is said that VPPAs are the fastest-growing funding structure. This type of PPA permits smaller, inexperienced buyers. This agreement helps in cooperating and developing the goals of corporations in order to meet the sustainability target and facilitate de-carbonization across the grid.
For more such amazing content, do follow our LinkedIn page.
What is a solar purchase power agreement?
A situation is when a developer pays a certain amount of money to install a solar energy system on an owner’s property and sells the solar energy to the landlord of a house at a fixed rate. A big task is to get solar panels on your property. You are probably responsible for selecting the equipment, finding a builder, and organizing any associated tax documentation in order to attain the federal tax incentives. There might be a better way to perform the same.
A solar power purchase agreement can also be written as SPPA or a PPA. SPPA is an alternative path to getting solar energy for your home. You can make better utilization of solar energy without installing the setting up of the solar system at your own place.
PPAs let you pass the heavy lifting to a developer as there are various advantages of solar power that include less expensive green electricity rates and better utilization of a renewable resource to offset pollution. All the details that are relevant for solar power, whether it belongs to installation, permitting, design, or even handling filing taxes to receive federal and state incentives, are operated by a partner who is hired.
Have you ever wondered about a car that can be driven anywhere you want but does not require filling the gas, washing it, or doing maintenance? It’s all about paying for actual usage with a PPA, but with a lease, you have consistent monthly payments.
Solar PPA vs Lease
The major consideration is made upon working on a decision made by the homeowner or renter regarding how to pay for the solar system and whether to own it or not. Owing the property can typically give you the best financial incentives, like a federal solar tax credit.
Of course, owning is not an option for all. So, those consumers for whom the solar industry is the second option have the property of availing of the benefits of solar energy. On the whole, the other two options can be broken down into either leasing or getting a power purchase agreement.
However, among the two respective options, there are various ways that reduce the cost. For instance, there might be third-party fees, down payments, monthly payments, lease-to-own, and net-metering benefits. In short, go through the entire details of any agreement and make sure that you understand all costs and advantages of your solar plan before signing on the dotted line.
We can also consider it as leasing or using a PPA that brings another party together. While making a comparison with a situation most of us have gone through, let’s consider purchasing a car. All the possible scenarios can be like this:
You pay for the car, and then you spend your money purchasing the gas and other future maintenance costs. That’s like owning your solar system.
Buy your own car, but you get a loan and pay it back in installments. That’s just similar to financing your system.
The monthly payments are made for your car, with the understanding that you will return it after a few years to get the latest model. That’s like leasing your solar system.
At last, it might be possible that someone else is buying a car for you, but you can make the utilization of the same after the installation of the gas or refilling the gas the time you make a drive. This situation is more like a financial PPA.
Working on Solar Power Purchase Agreements
The simplest way to describe a Purchase Power Agreement (or PPA) is: A PPA is where the homeowner/landowner agrees to permit a developer to place solar panels on your property at little to no cost. After that, the owner of the land buys the power generated from the system BACK from the developer at a rate that is lower than what the electric utility company is offering.
In exchange for your available rooftop or ground space, you will receive a lower energy bill every month, and in the installation part, the owner does not have any responsibility over it also to the maintenance or design of the solar energy system.
The lower rate you receive from the developer/owner of the system installed on your property enables you to offset your energy costs by decreasing the amount you rely on the grid for traditional energy and reducing the cost of the solar energy you are paying for using the solar panel design software.
Did You Know? With Solar Labs, you can increase your solar sales conversion by a WHOPPING 300%.
What is a Solar Power Purchase Agreement? | YSG Solar
With the exponential growth of solar power, and renewable energy as a whole, in recent decades, the methods of delivering solar energy to consumers have also grown and diversified. One such accessible avenue to clean, renewable, cost-efficient solar energy is a Solar Power Purchase Agreement (PPA).
Solar Power Purchase Agreements
A solar power purchase agreement is, as the name would suggest, an agreement between the involved parties—namely, the solar developer and the consumer/host. The agreement sees the solar developer take care of the solar panel installation. on the customer’s property, from start to finish. Everything from designs/plans, permits, financing and, of course, the installation, is covered by the developer. The installation of the solar system comes at little cost, or even no cost, to the energy consumer in question. Essentially, the consumer/host, is purchasing the services of the solar system, as opposed to the solar system itself.
So, as noted above, the solar developer takes care of the entire solar panel installation process. The benefit for the consumer comes in the shape of a reduced energy cost. The aforementioned developer—the owner of the system—sells the electricity generated by the solar array to the consumer at a fixed rate, typically lower than the rate on offer from the customer’s utility company. This clearly benefits the consumer by giving them access to stable, cheap energy for the duration of the PPA, which is generally somewhere between 10 and 25 years. Through the provision of this cheaper energy, the developer is offsetting the consumer’s purchase of grid electricity.
The solar developer benefits from the PPA by receiving the income from this sale of energy to the consumer. In addition, as the owner of the solar system. the developer avails of any tax credits, incentives, or rebates associated with the solar array. Of course, the solar developer also remains responsible for the system throughout its lifetime, taking care of all operations maintenance. Depending on the specific power purchase agreement, a consumer may have a number of options at the end of the agreement. Possibilities include an extension of the contract, the removal of the system, and the purchase of the system from the developer.
The following image, courtesy of the Solar Energy Industries Association (SEIA) outlines the relationship between the two main parties in a PPA—the developer and the consumer/host—as well as the utility company.
Benefits of a Solar Power Purchase Agreement
A solar power purchase agreement can be an excellent option for a lot of people, as it removes a number of the barriers commonly associated with the outright purchase of a solar system for a residential or commercial property, making the process simple and affordable. These solar PPA benefits include:
- No/Minimal Upfront Costs: A solar power purchase agreement provides an immediate payoff for the host/energy consumer. As the developer takes care of all financing. procurement, and installation, the customer simply goes solar and begins saving on their energy bill as soon as the system is up-and-running.
- Cheaper Energy: There are two typical pricing plans for a solar power purchase agreement and both lead to energy cost savings for the customer. The first option is a fixed escalator plan, where the energy price rises at a predetermined rate—generally between 2% and 5%—for the consumer. This rate is usually lower than projected utility rate increases. The second option is a fixed rate plan, where the price remains constant for the duration of the PPA. This allows for huge savings versus increasing utility rates year-on-year.
- Low Risk: The solar developer is completely responsible for all system performance and maintenance, taking on all the risk and alleviating the consumer/host of any responsibility for the solar system.
- Increased Property Value: Solar panels have been shown to contribute to an increase in property value and a solar power purchase is a long-term, transferable agreement. Therefore, if a consumer/host was to sell their property, they would benefit from the solar-related increase in property value without even owning the system themselves.
- Tax Credit Leverage: Solar developers are more capable of utilizing tax credits to reduce the overall cost of a solar system. compared to a typical solar energy consumer. This means a solar power purchase agreement is ideally positioned to avail of these tax credits.
Things to Consider with a Solar Power Purchase Agreement
While a solar power purchase agreement provides an excellent avenue to solar savings and reduced energy bills for the majority of hosts/consumers, certain issues may arise for a select few when considering a PPA:
- Solar Renewable Energy Credits: Generally for a power purchase agreement, SRECs (explained here ) are owned by the developer. Be sure to clarify ownership of SRECs ahead of the PPA, and clearly understand the implications of SRECs in terms of ownership and price.
- Financing: A solar power purchase agreement has advantages in terms of accessibility and immediate savings, as well as other benefits outlined above, but there are also upsides to purchasing a solar panel system outright. Make sure you consider all your options before committing to anything.
- Site: The solar developer is responsible for the entire installation process, as well as all OM after install, but, in certain cases, the host may need to invest in their property to make the installation possible.
- Property Taxes: As noted in the benefits section, a solar panel installation can boost property value. However, property taxes may also increase as a result. Of course, this will vary from state-to-state owing to different policies and regulations. Consult a tax professional for clarity on this issue ahead of any solar power purchase agreement.
To learn more about solar power purchase agreements, or even pursue a PPA yourself, contact YSG Solar today at 212.389.9215.
Don’t forget to follow YSG Solar on Instagram. LinkedIn for all the latest from the world of solar power and renewable energy.
By Shane Croghan