What is a Solar Power Purchase Agreement (PPA)?

Solar Power Purchase Agreements (PPAs) are a more popular financing option today, and it is is a long-term power purchase agreement. A solar power purchase agreement is an agreement between a solar developer (solar company or energy supplier) and a customer.

The solar company is responsible for providing the solar panels and installation equipment (PV panel mounts, lithium iron phosphate batteries, connectors, PV cables, battery cables and circuit breakers, solar inverters, etc.). It also includes the design, installation and maintenance of the solar system. The solar panels are installed on the user’s roof, and the location and layout are determined by the solar developer to ensure maximum benefit.

The customer is responsible for the use of the electricity resources generated by the solar panels, and pays the solar developer for the electricity in the same way as they would normally pay for electricity from the city’s grid company. However, the cost of electricity paid to the solar developer is lower than the cost paid to the city grid company.

Solar Purchase Agreement (PPA) Ownership of the Solar System

Since the solar panels themselves and the cost of installing and maintaining the panels are paid for by the solar developer, ownership of the solar system belongs to the solar developer, as do subsidies from local incentives.

The agreement generally lasts for 10 to 25 years, largely based on the wishes of the solar developer and the customer. During that time, if either party wishes to terminate the agreement for breach of contract, they will be required to pay liquidated damages to the other party, as outlined in the contract that was previously drawn up between them.

How does a solar purchase agreement work?

1. Agreement: An agreement is made between the solar developer and the customer that defines the points and provisions of the contract. The agreement will be mutually agreed upon and legal counsel for both parties will ensure that it is fair and workable.

2. Carrying out the installation of the solar system: After the agreement is finalized, the solar developer goes about assessing the site for the installation of the solar system, the layout, procuring the solar panels and installing the solar panel related equipment and mounting the solar panels on the customer’s roof. The solar developer is responsible for everything, such as applying to the relevant authorities for the installation of solar panels and following the relevant laws and regulations.

3. During solar operation: During the operation of the solar system, the user will be provided with the power resources obtained from the solar power system to power household appliances. When there is more power in the solar system than is needed for the appliances, it will be transported to the city grid company to supplement or offset the power that the customer receives from the city grid company.

In the meantime, the solar developer monitors whether the solar system is operating optimally. The solar developer monitors whether the solar system is operating at its optimal level, thereby increasing the amount of power generated by the solar energy to maximize the benefits of the solar power system. Solar is also solely responsible for the maintenance and protection of the solar system.

4. Electricity Purchase Costs: During the term of the contract, the customer will receive a bill from the solar developer (which details the amount of electricity consumed by the customer), and will be required to pay the solar developer a monthly or quarterly solar electricity bill, which is usually cheaper than that charged by the city’s power grid company.

In addition to this, the customer may also receive another bill for the electricity purchased. When we install our own solar panels, we often don’t offset the full cost of the electricity and have to pay a separate bill to City Grid. The same applies to the electricity bill for purchased power sources, which also needs to be paid to City Grid. As a result, the customer’s electricity bill will be lower compared to before, because the solar developer’s electricity bill is lower than the city grid company.

5.Your options when the contract expires: When the contract time expires, you can choose to renew it to extend the contract period, or you can dismantle the system and terminate the cooperation. Of course, you can also negotiate with the solar developer to buy the solar panels at the right price so that they belong to you. At the same time, you will have to cover the initial installation and maintenance costs.

Benefits of Solar Power Purchase Agreement

1. For developers: Solar developers can make a profit after recovering their costs in 3 to 6 years by charging customers for electricity to offset the cost of installing and maintaining the solar system and the subsidy policy provided by the local district. Through this initiative, solar cell systems can also be better publicized.

2. to users:

2.1 Users do not have to invest a lot of cost in the upfront use, they can directly purchase solar power resources and its cheaper than the power resources purchased from the city grid company. It also saves money in the long run.

2.2 Fair and equitable terms and conditions that give users more choices and allow them to customize the agreement according to their needs requirements.

2.3 Avoids the investment risk associated with purchasing a solar energy system outright, and a small percentage of the benefits can be realized as well.

3. To the environment: Through the solar power purchase agreement, more people can enjoy renewable energy-solar energy, and photovoltaic power generation is popularized and used. It reduces greenhouse gas emissions, saves energy, and practices the concept of green development, making the ecological environment better.

The disadvantages of the solar power purchase agreement compared to the direct purchase of solar energy system

1. Users must consciously follow the treaty on the contract, and cannot violate the treaty during the agreed period, or else they need to pay liquidated damages. Limits the flexibility of solar system usage.

2. Unable to take advantage of local incentives and subsidies and need to pay regular electricity bills.

3. The layout of the house solar system installation is controlled by others.

Based on experience, the solar power purchase agreement is extremely beneficial for those who cannot afford the high upfront cost of solar installation. It allows us to enjoy photovoltaic power at a low cost and lower electricity bills. However, if you can afford to pay upfront costs, the benefits of installing a solar system directly and solely are far greater than installing a solar system through a solar power purchase agreement. It allows us to recoup our costs over a period of 3 to 5 years and eventually enjoy the profitability of a solar system.