Solar Power Purchase Agreements

Are you a business owner? Governmental agency? Want to install solar panels, but worry about the cost? There are many ways to finance solar panels these days and defray the upfront cost, including entering into power purchase agreement.

Also known as a PPA, power purchase agreements allow purchasers of solar energy to take advantage of its benefits, without some of the risks.

Under a typical power purchase agreement, the solar panel manufacturer or retailer (known as an independent power producer) will finance, install and own your solar panels. You pay nothing for the installation of rooftop solar panels. Then, as the panels generate clean, solar electricity, the provider acts as your utility company. You are billed for the electrical output of the solar panel system, but at a discounted rate.

A power purchase agreement is a contract between you - the consumer - and the provider of the solar electricity. They generally include detailed provisions including important considerations concerning cost, insurance, taxes and more. You should consult an attorney to review the contract before you sign.

Key provisions that are typically included pertain to:

Term: How long is the contract? Often, the term of a PPA is 15-20 years.

Assignability: What if you sell your business, or your property? What if the provider changes corporate structure? Will the PPA continue? If so, under what terms?

Cost: A very important consideration. How much do you pay for power generated by the solar panel system? Are you billed monthly? Quarterly? How often does the cost increase? Some contracts include escalations on an annual basis, or every 3-5 years.

Payment: To whom do you make payments? Is there a grace period? As with most contracts, if you fail to make a timely payment, you may be in breach of contract. Determine if there is a right to cure, and carefully review any breach provisions so that you are aware of remedies the provider may seek against you - including attorney fees!

Taxes and Insurance: Often, providers agree to bear the cost of taxes and insurance for the solar panel system. However, there may be real property tax considerations if the panels are considered to improve the value of your property. Make sure that insurance limits are adequate to cover the cost of replacement, if necessary.

Destruction and Damage: If a storm hits, or if vandals destroy the system, the PPA contract should specify under what circumstances the provider will replace and restore the panels.

Termination: When does the contract end? Do you have a right to extend the term? Who has the responsibility to remove the panels and restore the property? Do you have the right to purchase the solar panel system at the end? If so, at what cost?

Solar power purchase agreements are generally between independent power providers and commercial or governmental entities.

Cash-strapped organizations like schools and local governments can often make the switch to solar energy under these agreements. Both the provider and the customer benefit from the use of predictable, clean renewable solar power under a PPA.

The United States government has encouraged PPAs with tax credits and other incentives. IPPs can obtain credits and even low-cost financing for the systems under provisions passed this year as part of the stimulus package, the American Recovery and Reinvestment Act of 2009.

The fast-growing business model has really taken off in California - the home of the Million Solar Roofs program. But solar PPAs are used by a number of organizations across the country, and the popularity of this method of financing solar panels is increasing each month.

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