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Solar Financing : Solar Power Purchase Agreements

For owners of SMB's and large businesses, an option you may not have considered, but that can reduce your energy bills and possibly provide additional revenue is a Solar Power Purchase Agreement (or SPPA).  SPPA's can be customized for various different types of property, including long-term leased property, and depending on your situation, may even be applicable for certain types of residential property. 

What Is An SPPA?
An SPPA is an agreement between several parties that essentially covers the interactions and responsibilities required to install, maintain and utilize a solar power system.  A typical SPPA will include the host customer (the owner or lessee of the property), the solar services provider (the party coordinating the project and contracts) and the power utility.  A typical arrangement will be setup so that the host will typically not pay for any of the equipment and will purchase the energy from the panels at a lower rate than their current utility's pricing.  Note that for small properties or homes, a solar lease is more appropriate.

What Are The Benefits?
For any business considering a solar power system, an SPPA will save thousands if not hundreds of thousands of dollars in equipment costs.  The host will know what their energy bill will be for the duration of the SPPA (usually between 6-25 years) making it much more predictable than the local utility's fluctuating pricing.  All of the maintenance and setup is typically covered by the solar services provider, so thousands more will be saved in maintenance costs when compared to purchasing a solar power system.

What Are The Drawbacks?
If the location is leased, it may be difficult to get approval for the system installation.  When the host needs more electricity than the system can provide, the local utility will be used, which may add additional administrative costs to the host.  Property taxes may be increased in certain states and counties after installation.

How Do I Get Started?
If you think an SPPA may be right for your business, or if you just want to get additional information or a quote, start your research for SPPA providers in your area.  Make sure you speak with your lessor if you lease your building to make sure that you are allowed to install a solar system, and to ensure that the lessor will not have the claim to any Renewable Energy Certificates (RECs) or potential revenue from energy surplus.


Source: U.S. Environmental Protection Agency

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.

With this business model, the host customer buys the services produced by the PV system rather than the PV system itself. This framework is referred to as the “solar services” model, and the developers who offer SPPAs are known as solar services providers. SPPA arrangements enable the host customer to avoid many of the traditional barriers to adoption for organizations looking to install solar systems: high up-front capital costs; system performance risk; and complex design and permitting processes. In addition, SPPA arrangements can be cash flow positive for the host customer from the day the system is commissioned.

Source: Wikipedia

Power Purchase Agreements are contracts between two parties, one who generates electricity for the purpose of sale (the seller) and one who is looking to purchase electricity (the buyer). There are various forms of Power Purchase Agreements; these are differentiated by the source of energy harnessed (solar, wind, etc.). Financing for the project is delineated in the contract, which also specifies relevant dates of the project coming into effect, when the project will begin commercial operation, and a termination date for which the contract may be renewed or abandoned. All sales of electricity are metered to provide both seller and buyer with the most accurate information about the amount of electricity generated and bought. Rates for electricity are agreed upon in the contract between both parties to provide an economic incentive to being a Power Purchase Agreement.

A Power Purchase Agreement (PPA) is a legal contract between an electricity generator (provider) and a power purchaser (buyer). Contractual terms may last anywhere between 15 and 20 years,[1] and during this time the power purchaser buys energy, and sometimes also capacity and/or ancillary services, from the electricity generator. Such agreements play a key role in the financing of independently owned (i.e. not owned by a utility) electricity generating assets. The seller under the PPA is typically an independent power producer, or "IPP." Energy sales by regulated utilities are typically highly regulated by local or state government, so that no PPA is required or appropriate. Commercial PPA providers can enable businesses, schools, governments, and utilities to benefit from predictable, renewable energy.

Source: US Department of Energy - EERE (Energy Efficiency & Renewable Energy)

Sample Documents for Power Purchase Agreements
FEMP works with Federal agencies and partners to assemble sample documents from past power purchase agreement (PPA) projects. The intent of these documents is to provide sample resources to help streamline the PPA process for Federal agencies.


Solar Power Partners

A solar Power Purchase Agreement, or PPA, is a long-term agreement to buy power from a company that produces electricity, and serves as an excellent alternative to financing and owning the system.
We use our own source of funds to build a solar energy facility on our customer's site, and maintain and operate the facility for 20 years or longer. The solar facility generates reliable, long-term clean energy for use by our customer.
Under the terms of a PPA, we:

Assume the risks and responsibilities of ownership
Maintain the solar panels, provide preventative maintenance services, and repair any faults
Monitor the energy production and the system's health and well-being
Our customers run their businesses as usual, without any of the headaches of owning a power plant.

At the end of the PPA term, the facility can be purchased by our customers at fair market value, or the PPA can be renewed on favorable terms. The PPA enables our customers (and our world) to benefit from the use of "green" energy, while still receiving some of the benefits of ownership (lower and/or "hedged" electricity costs, positive public image, etc. ) and allows them to spend their capital budget on their core businesses.

Benefits of a solar PPA:
No upfront costs
SPP provides the capital to develop the solar facility, freeing your capital for use in your core business.

Stable energy costs
An SPP solar PPA allows a long-term energy contract with defined pricing for every kWh you consume.

Minimal risk and hassle
We optimize, maintain, and warrant the system for the life of the PPA--you pay only for the power generated.

Simplified approval process
Solar PPAs are often much easier to justify to management (or Boards and councils) than a lease or outright capital purchase.

Sun Run Home

In Hawaii, Massachusetts, New Jersey, Pennsylvania, parts of Colorado, and most of California, SunRun Total Solar is a solar power purchase agreement. In Arizona, parts of Colorado, and in Los Angeles if you're in LADWP territory, it is a solar lease. Homeowners can choose to pay for Total Solar in two ways. Total Solar - Low Upfront allows homeowners to get started for as little as $0 and pay monthly for their solar electricity. Total Solar - Prepaid allows customers to pay for all their solar electricity in advance. Learn more about going solar in Arizona, California, Colorado, Hawaii, Massachusetts, New Jersey, and Pennsylvania with SunRun on our Solar by Location pages.

All SunRun customer agreements include a money back performance guarantee, insurance, professional grade monitoring, and complete coverage for all maintenance and repair for the life of the plan.

Solar power purchase agreements are the choice of most businesses that install solar power systems. Companies like Wal-Mart, Whole Foods, Safeway, Staples, and Macy's use solar PPAs to get the benefits of solar power without a high upfront cost or the hassle of owning, maintaining and monitoring the solar equipment themselves.

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