A power purchase agreement (PPA), or electricity prepaid power purchase agreement, is a contract between two parties, one which generates electricity (the seller) and one which is looking to purchase electricity (the buyer). In the U.S., PPAs are typically subject to regulation by the Federal Energy Regulatory Commission (FERC).
Prepaid Power Purchase Agreement Concept
The concept is simple and is not necessarily limited to use in the United States. The developer asks the utility that has signed a long-term contract to buy electricity from the project, to prepay for a portion of the electricity in exchange for a discount on the electricity price.
Chances are the utility has a lower cost of capital than the project has. The prepaid power purchase agreement is economically equivalent to a loan, to the project by the utility that the project repays in kind by delivering the prepaid electricity. However, it is “soft” debt without all the tight default triggers that one normally finds in project debt. If there is a shortfall in electricity delivered compared to what was promised, the project can have as many as three years to make up the shortfall before there is a default, and its penalty after that is simply to pay the cost of replacement power.
A prepaid solar lease/PPA is very similar to purchasing your solar panel system. In a pre-paid solar lease/PPA, you pay 100% up front when you sign the contract, and do not have to pay anything for the duration of the agreement. Because you pre-pay, the TPO assumes no risk, and they are generally willing to make adjustments to the lease/PPA terms that are favorable to you.
The solar leasing company owns the system in a prepaid lease/PPA, but the lease amount will be similar to the purchase price of the system, including rebates, tax credits, and incentives. The leasing company is usually willing to allow you to benefit from the sale of any available Solar Renewable Energy Credits (SRECs).
Pros of prepaid power purchase agreement
- Total price is 30-50% lower than what you would have paid if you bought the system
- Prepaid solar leases/PPAs can increase your home’s value in the event of a sale
Cons prepaid power purchase agreement
- Requires an investment in the range of $5,000 to $20,000, depending on where you live and the size and quality of your solar panel system
For a free consultation please contact Poweraid Solar at 855-4MY-SOLAR or 949-387-3998