Commercial Solar Power Purchase Agreement vs Buying
Solar panel manufacturers, distributors, and installers have designed many ways to make on-site solar accessible to commercial customers. In addition to several state and federal grants, rebates, and tax incentives, the industry offers financing vehicles to make solar projects feasible. Solar power purchase agreements (PPA) are one way businesses can capture solar energy without incurring inhibitive costs.
Thinking of funding solar with a power purchase agreement? Learn the advantages and disadvantages of a PPA vs. buying solar panels, and how Keen can help you decide.
What Is a Solar Power Purchase Agreement?
A solar power purchase agreement is a financial contract where a developer agrees to design, permit, finance, and install a commercial solar energy system at a price below retail market value. In most cases, the contract also includes an agreement to sell electricity to the customer below utility retail prices. In return, the developer receives the income from the electricity sales, plus any relevant tax credits, incentives, or rebates generated by the system.
How Long Do PPA Agreements Last?
Most solar power purchasing agreements last 10 to 25 years. During that time, the developer is responsible for operating and maintaining the solar power system. At the end of the agreement, the customer typically has the option to extend the PPA, have the developer remove the system, or purchase the system from the developer outright.
The Benefits of Solar Power Purchase Agreements
As you can imagine, PPAs offer several advantages for customers, especially in the early phase of the agreement.
No or low upfront costs—The developer handles upfront costs, which means the customer enjoys immediate energy savings upon installation completion and a very short return on investment.
Lower energy costs—Solar PPAs usually have a fixed electricity price, which protects customers from energy price volatility.
Lower risk—Because the developer is responsible for installation and maintenance, customers are very little at risk of surprise repair or replacement costs.
Disadvantages of Solar Power Purchase Agreements
Some drawbacks to PPA make them less desirable for some businesses.
No incentives—Because the developer receives the tax incentives and rebates, customers don’t benefit from these tax-related perks.
Rates—While the electricity rate of a PPA is less volatile, electricity costs in your area may be below your agreed-upon rate for a considerable period during the agreement. This means customers may have saved more money on their energy bills had they owned their system from the beginning.
Control—Customers have little to no control over the system and are locked into long-term agreements with expensive exit clauses.
Service issues—Developers are responsible for maintenance and repairs, which means customers are dependent on them to respond quickly when issues arrive. There is also the risk that the developer will go out of business before the agreement ends.
Read more: Commongrounds Solar Project Case Study
Buying Solar Panels vs PPA
Of course, buying solar panels presents an almost inverse list of pros and cons. Purchasing solar panels and owning the system from the very beginning gives businesses:
Complete control of their system design, maintenance, and performance
Lower energy prices when they are below the PPA rate
All of the tax advantages and incentives available
Businesses are responsible for upfront costs, financing agreements, ongoing maintenance, and any liabilities associated with the system. In most cases, owning the solar installation will increase property more than using a PPA.
Are Commercial Solar Power Purchase Agreements a Good Deal?
Commercial PPAs are a good option for businesses that will benefit from the cost savings associated with solar energy but cannot finance purchasing a system outright. For many organizations, the decision between buying, leasing, or using a PPA for solar comes down to a few questions:
Will the organization finance the project without negatively impacting company growth?
Will the qualifying tax credits and incentives substantially reduce the system costs?
Is a fixed energy rate more advantageous than a lower electricity rate's potential (but not guaranteed)?
You don’t have to answer these questions alone. Our energy consultants can help you crunch the numbers and determine the best way to invest in solar energy.
Start Your Commercial Solar Project with Keen Today
Keen Technical Solutions has nearly thirty years of experience helping businesses make energy efficiency improvements. From HVAC to solar, we bring expertise and a solutions-focused approach to your toughest energy challenges. PPA, leasing, buying—we’ll make the best recommendation for your organization, whether it means we get the work or not. See what progress looks like; contact a Keen energy consultant today.