Solar power is a great concept in theory, but can be difficult to implement in practice – particularly those who are new to solar.
Key problems include:
- Prohibitive cost and
- Expertise required to maintain a solar (also known as a photovoltaic or PV) system.
The Green Movement has adopted the Solar Power Purchase Agreement (SPPA or PPA) to solve these problems.
So, what is a PPA?
We will define this important legal document, how it works and who might be candidates thereof. After you finish reading this Standard Power Purchase Agreement Guide, we hope you will have a better understanding of how this renewable energy agreement works. By creating sustainable electricity legal agreements, homeowners can gain more control over their sustainable energy investment.
Energy Runs World
Every second, electronic smart phones and computers are being used to connect men to the world around them. Electricity provides energy, heat and power to run homes, businesses and governments. Energy is essential and electrical demand will continue to go up and up.
And, in order to satisfy this increasing demand, power companies must find new sources (besides new water dams or nuclear plants). Utilities have decided to hook their wagon to the Green Energy Movement to create sustainable energy.
Now after decades, environmentalists have created new financial structures to help those who are interested, but not as dedicated as the first adopters were. The PPA lowers the bar for homeowners to enter the solar generation market. It also helps solar equipment technicians and power plants by increasing renewable energy supply.
PPAs Solve Problems
The first wave of the Green Movement encouraged first adopters to place solar panels on their rooftops. They received tremendous energy savings and tax incentives for doing so. But, some were more hesitant about installing solar panels on their rooftops.
Unfortunately, many photovoltaic systems are very complicated and only rocket scientists, professors and engineers seemed to understand how they work. Solar systems require a great deal of scientific expertise for installation, maintenance and repairs. And, the cost proved to be very high. It was difficult to justify the set-up costs. It took many years to enjoy a significant Return on Investment (ROI).
Furthermore, utility companies need to be able to adequately predict energy supply for the future. And, many solar equipment manufacturers had unused capacity. The solar industry needed a jump start. Fortunately, power purchase agreements have solved all these problems.
Now, the solar lease phase enables homeowners and third-party investors to cooperate to generate solar energy. The long-term agreement provides utilities with a way to predict future energy supply.
Different Types of Purchase Agreements
It is important to note that there are many types of future power purchase contracts, which involve different parties, terms and conditions. Each will attempt to make solar energy investment, more sustainable and profitable. For our purposes, we will focus on three parties to the agreement: 1. Homeowner, 2. Power Company and 3. Solar Equipment Provider (which includes Investors and Service Technicians).
Homeowners Going Solar
“Going solar” sounds chic, cool and responsible; but, it is harder than it sounds. Who doesn’t want to be a steward of Mother Nature? Many people understand that the old carbon system is completely unsustainable.
”Going solar” involves putting your money where your mouth is.
But, talk is cheap. While many may want to be “card-carrying members of the Green Movement,” few actually have the expertise or means to do so.
The standard power purchase agreement fulfills two key deficiencies of many homeowners:
- Lack of Expertise and
- Lack of Money.
1. Homeowner Benefits
Solar homes have many intriguing benefits. Homeowners have independence in generating energy and can enjoy higher property values, as a result.
These are just a few of the ways that homeowners benefit from these contracts:
- Lack Scientific Expertise
- Generate Energy
- Save Money
- Solar Financing
- Increase Property Value
- Emergency Resource
Many individuals don’t know how to fix photovoltaic systems.
Solar-equipped homes generate electricity.
Households save money on energy bills by producing a portion of the energy, they use.
The best power purchase agreement provides solar financing. Some third party solar investors are willing to provide zero cost solar systems in exchange for ownership of the energy produced.
Solar equipment increases property values.
During emergencies, homeowners can tap into their own stored energy. This could be a life-saver.
2. Power Company Benefits
Sustainable energy producers increase supply for power plants. Utility companies benefit from a more established energy supply infrastructure.
Here are power company benefits from a virtual power purchase agreement:
- Increase Supply
- Long-Term Agreement
In 2000, the State of California had brownouts due to high energy usage. Power companies appreciate the addition of new suppliers.
Utilities can control power purchase agreement rates, adding more suppliers when necessary. The longer-term agreement assists with rationing, allocation and budgeting.
3. Third Party Solar Investor Benefits
The solar industry needs a jump start and these renewable energy contracts provide the following benefits:
- Lease Equipment
- Share Profits
- Tax Incentives
Unused solar panels can be installed on rooftops. And, servicemen can maintain and repair the solar equipment to remain busy.
Third party investors earn profits by producing energy, which is resold to homeowners, businesses and utilities.
And, tax incentives accrue to these third-party solar investors.
Good Candidates for Energy Purchase Agreement
Many power purchase agreements are compromises for those who are interested in solar energy, but not gung-ho about it. They might be hesitant due to high upfront costs or equipment maintenance. These virtual power purchase agreements are also more valuable for those with high energy bills already.
Rural Western states – Arizona, California, Colorado and Montana with numerous sunny days and few buildings to block the sunlight – might be the best locations for rooftop solar systems. With these contracts, the solar provider or solar manufacturer receives the tax incentives. All in all, this solar lease is a shared risk investment suitable for those with a medium risk tolerance.
How to Construct Power Agreement
You might want to write down your present utility costs and space available for solar lease. Determine by how much you would want to reduce your monthly energy cost. Then, estimate your solar investment risk tolerance.
Third party investors or utilities will charge you lower power purchase agreement rates. The normal time range is between 10 and 25 years for this solar power purchase agreement. Homeowners are leasing their rooftops to third parties, who will provide installation, maintenance and service (the third party owns the energy produced).
Energy production is also closely regulated by each state. Therefore, you will need to check with your state to determine its regulations and allowances. Some states are very supportive of PPAs.
Control Risk with Contracts
Solar power purchase agreements can be used by homeowners, power plants and third parties to control investment risk. Homeowners have more options in determining the terms of installation, maintenance and sale of energy. Power plants have a long-term agreement providing supply. And, solar investors gain tax incentives.
The virtual power purchase agreement is best for rural land owners with high utility bills in the West (who have more sunny days). The second wave of the Green Movement has arrived. These contracts aim to make sustainable energy production, the norm for all of society.