Power Purchase Agreement (PPA) for Commercial Solar
A Power Purchase Agreement is a great way for a company or non-profit organization to pay a controlled rate for power over a 20 or 25 year period. In many cases, the PPA electric rate is significantly discounted compared to the utility rate for the same energy. The company (client), also known as offtaker or host, only pays for the power they use as long as they meet the predetermined minimum. The PPA can be of particular benefit to organizations which do not qualify for the investment tax credit like non-profit groups because the lender shares the tax credit and depreciation savings in the form of a lower electricity rate.
PPA benefits include:
- Lower costs with a structured PPA compared to utility rates
- Gain the tax credit and depreciation benefits which otherwise may not be available
- Long 20 or 25 year terms with early buyout option at year 7
- No upfront capital costs
- All install, hardware and maintenance costs included in the PPA rate
- Annual escalation is usually lower than utility rate increases
- Enhances property resale value
Without a PPA, non-profits cannot benefit from the application of the tax credit (ITC and depreciation) unless the Provider (a Special Purpose Entity) can establish and maintain the solar system and provide power only to the user as a service. The SPE then takes the tax incentives and applies it to the project to make the energy system more cost effective. This is a great long term option to a loan program.
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A Power Purchase Agreement is a great way for a company or non-profit organization to pay a controlled rate for power over a 20 or 25 year period.