A power purchase agreement (PPA) is part of the OPEX business model offered by solar companies to promote consumers to buy solar. Many consumers don’t install solar because the setup cost is too high. PPA provides these consumers with an economic solution by eliminating setup and maintenance costs.
What is PPA? How did it Emerge?
Before we understand PPA, we need to understand the business models available when you choose to install solar. A consumer can go solar through two business models namely CAPEX and OPEX model. In the CAPEX model, the customer finances for the solar PV system setup and other costs like operations and maintenance. However, in an OPEX model, the solar system integrator invests in the setup, operational and maintenance costs and the customer pays them a fixed amount for per unit solar electricity consumed in return.
Under the OPEX model, a power purchase agreement is a contract between a solar company, the solar investor (could be a third party or the EPC company itself) and client which details the responsibilities, tenure, pricing, and after contract agreement. As discussed earlier, the OPEX model is a win-win situation for both solar companies and customers.
As the OPEX model lasts for a long period, to avoid the possibility of a customer defaulting during the contract period bank guarantees may be required. Thus, the PPA came into existence as a regulatory framework to briefly describe the responsibilities and consequences of an OPEX service. We intend to enlighten our readers with new solar energy information by talking more about the benefits of PPA.
How Does PPA Encourage You to Buy Solar?
No Setup or Maintenance Costs
As mentioned earlier, the PPA eliminates the major hurdle for a customer looking to go solar i.e. setup and maintenance costs for the consumer. According to the PPA, the solar company owns the solar system for the period of the contract, making them responsible for all costs from procuring components to finally maintaining them. In return, the customer is responsible to provide the land for setup and pay a fixed price for per unit of solar electricity generated to the solar company. The fixed price is always cheaper than the price paid to utility grid companies and is also applicable for a long period with a minimum year on year escalation.
As the solar company takes responsibility for all operational and maintenance costs, the customer does not have to pay anything even if the system breaks down or reduces its generation capacity.
Own the Solar PV System After the Contract
At the end of the PPA tenure, the solar system integrator hands over the system to the customer which means that after tenure, the customer is free of electricity costs. Once the customer owns the plant, they may choose to renew the O & M contract with the same vendor or look for a new one.
Increase the Value of Your Asset
Considering the decrease in electricity costs, assets with the solar system have higher property value in comparison to assets that don’t.
Long Term Savings
With reduced electricity costs and the PPA contract is a long term contract, the savings stay forever.
The PPA contract is easily transferable to new owners if you decide to move out reducing the tedious documentation processes.
Reduce your carbon emissions and join the initiative of saving the world.
How Does One Qualify for PPA?
OPEX projects are generally for large residential complexes, industries, businesses or educational institutes that have high power consumption and are looking for a cheaper alternative. The solar system integrator conducts a site survey to understand the potential or size of the project. Every solar company has a different project capacity for OPEX solutions. Based on their criteria, they decide if they can accept the project.
In conclusion, the PPA ensures that both parties adhere to the terms and fulfill their responsibilities until the end of the contract and eliminates the possibilities of default. Visit us next time for more solar energy information like this.