A Power Purchase Agreement (PPA) helps make wind and solar affordable.
Have you ever wanted your home or business powered by wind or solar energy? The significant cost of investing in a wind turbine or an onsite solar photovoltaic (PV) system can be prohibitive. Even with the recently huge drops in prices for solar panels, the average cost of a solar PV system is still too high for many to be able to purchase and install. A wind turbine represent a portion of the costs involved in getting one set up. A PPA can help make either option affordable. It is a financial agreement between a solar or wind service provider who owns and operates the respective system, and a host customer who agrees to host the system and purchase the electricity produced by it from the solar or wind service provider.
A Power Purchase Agreement can also be used for virtual offsite renewable installations, allowing the host customer to receive their electricity from renewable sources even if their property cannot feasibly host a wind turbine or solar panels.
The PPA removes the host customer’s expense of purchasing and installing the system.
The host customer pays only for the electricity produced by the system at a fixed rate that is usually equal to or below the utility rate. A PPA is a multi-year contract which typically lasts anywhere from 6 to 25 years. When the term of the PPA ends, the customer may choose to extend the contract, purchase the system, or have it removed. A PPA can be a terrific way to hedge against the volatile prices of fossil fuels.
The Host Customer
After determining whether the host customer’s site is suitable for a wind or solar PV system through a feasibility study, the host customer agrees to provide a site for the system, but does not purchase or own it. The host customer doesn’t operate or maintain the system at all. The host customer simply agrees to purchase the electricity service from the solar or wind services provider at a fixed rate, typically at or slightly lower than the utility rate.
The Wind or Solar Service Provider
The wind or solar service provider earns monthly income from the sale of electricity to the host customer and takes advantage of the renewable energy tax benefits. The provider is responsible for maintaining the system, tracking its performance and coordinating the entire project.
The Electric Utility
The utility provides an interconnection from the system to the grid. The utility continues to provide electric service to the host customer to compensate for any amount of electricity not provided by the system. The utility provides net metering credit to the host customer for any surplus electricity produced by the system.
Benefits of a PPA:
- There are no upfront costs to the host customer.
- There is day-one positive cash-flow.
- Hedge against rising utility electricity costs.
- Potentially increases a property’s value.
Keep in mind, once you enter into a PPA agreement, there may be two electricity bills to manage–one bill for the wind or solar service provider, and one for the utility. A wind turbine or solar panels may add to the value to your property, in which case, there may be an increase in your property tax, depending on the state.
A power purchase agreement is the easiest and most cost-effective way to having your electricity supplied by a wind or solar system. Contact Cost Containment International for more information.