A power purchase agreement (PPA) is one of the best ways businesses can directly lower their monthly electric bill at no upfront cost. With a solar power purchase agreement, the solar developer installs and owns the system on a property, and the property owner agrees to buy the net metering credits generated by the system for a set period of time. This means the property does not consume the electricity that is produced directly, instead the developer receives what is called net metering credits which the property owners buys back for less than the cost of their electric bill.
Net metering credits are used to offset the property owners electric bill. For example, if the property uses $100 worth of electricity per month, and the property has $100 worth of credits, the electric charge for that month will be $0. The property owner agrees to buy these credits at the power purchase agreement rate, which is typically 10% - 20% less than the price per kWh provided by your utility company. There is typically a price escalator in these power purchase agreement rates which is also agreed upon by both parties, and is below what the expected utility market rate increase will be.
The developer owns the system outright meaning they pay for the cost of the panels, the cost of installation, the cost of permitting, and the cost of insurance. The developer has full control over the system and sells the net metering credits generated directly to the property owner. As a result, there is no cost for the property owner in installing or maintaining the system.
Due to the nature of our bidding process, you will not have to worry about negotiating solar power purchase agreements. Developers know they are dealing with an educated consumer and competing with other top tier developers for your business, which results in them offering you the best price they can. However, we are not discouraging further negotiations and you are more than welcome to negotiate with the developers in your auction for a better rate.
• No installation, maintenance or insurance costs
• 10-20% average reduction in monthly electricity payments
• Contract often includes roof replacement or EV charger integration if needed
• Work toward sustainability goals
• Doesn’t provide tax or depreciation incentives for the property owner
• Lower returns when compared with panel ownership (panels are owned by the developer)
• Contract is binding—payment for net metering credits is owed regardless of relocation and the property owner is liable for the remaining value of the system should they chose to prematurely terminate the PPA
Solar PPAs work in any region where the local utility offers net metering. However, not all net metering programs, or states incentives, are equal when it comes to the value of solar. The power purchase agreement price per kWh of electricity is ultimately calculated using regional incentives varying by state and even by town.
Strong state-wide incentive programs and higher than average electricity costs drive the value of going solar. Some of the most popular states for solar include Massachusetts, New York, New Jersey, and California. These states provide lucrative rates for solar developers meaning a decrease in your PPA rate and higher savings for the property owner.
If at this point you have decided that a solar PPA is not for you, do not worry! There are other options for you and your business to benefit from solar. Take a look at some of our other articles detailing direct purchase and site lease opportunities. Direct purchase is advantageous for companies with cash on hand looking to maximize the value of their solar system, while site lease is best for property owners with a minimal on-site electric load, such as real estate firms.
We have compiled a list of helpful resources to learn more about PPAs and their use cases for businesses.
This solar power purchase agreement sample is designed to help you get an understanding of the contract you may receive. It is important to note that developers use their own legal documents, and the document you receive may be formatted differently. Click here to download the example power purchase agreement PDF from the Solar Energy Industries Association.