How Do Solar Power Purchase Agreements Work?

by | Oct 5, 2020 | Uncategorized

What is a Solar Purchase Agreement?

A solar power purchase agreement, or SPPA, is a contract to purchase electricity from an Energy Provider. The provider will maintain ownership of the solar system. There is no upfront cost and depending on the provider, they may offer cash back as well. This is usually a small fraction of the government rebates the provider receives for installing the system.


Types Of Solar Purchase Agreements

There are two types of Power Purchase Agreements.


These agreements are usually been energy providers and large scale energy users. A contract is set up with a large wind or solar farm at a fixed rate, to supply long term energy to businesses at the discounted rate without upfront cost.


In contrast to commercial PPA’s, Behind the metre PPAs are constructed on the customers property/rooftop. Energy generated is purchased by the customer from the provider. This is at a reduced rate compared to their energy retailer. There will often be increase in rates per year in line with inflation. The ownership of the system remains with the provider for a fixed term of 10-20 years as does any maintenance responsibility. No upfront cost. Most customers will remain connected to the grid to allow for energy requirements the system cannot meet.

At the end of the agreement period the ownership transfers to the customer. Depending on the length of the contract some warranties may be remaining on the solar panels but inverter replacement is very likely to be required. Technology is also likely to have advanced by contract completion and the panels superseded by more efficient models.

What Is a Solar Operating Lease?

A solar operating lease is a contracted fixed monthly payment for purchase of electricity generated on your premises. While providing system generation guarantees it may lock a customer into a higher rate over time. The leasing cost will appear on your business balance sheet which may be a positive or negative factor for business.


Power Purchase Agreement VS Solar Operating Lease

While both options offer no upfront cost and reduced energy costs, it is dependent on the personal circumstances of your business as to which is the most beneficial.


Power Purchase Agreement Pros and Cons

No upfront cost No ownership of the system during the contract
Instant energy savings Two electricity bills- one from your retailer and one from your solar provider
No maintenance costs or responsibility for the property owner May be required to purchase solar energy you are not using
High quality product usually provided to avoid maintenance issues Rates may fluctuate throughout the contract
  System may be worn out or outdated by the end of the contract term
  Without the initial cost it is easier to start saving quickly, however in the long term owning your own system will be more beneficial to you

What Solar Power Purchase Terms Should I Expect?

There are no industry standards or legislation regulation Power Purchase Agreements. For this reason you need to carefully go over your contract. They are still overseen by the Australian Energy Regulator (AER) and bound by the Australian Consumer law. The AER website has some great information for consumers https://www.aer.gov.au/

Common contract terms are as follows:

  • Annual rate increases
    • A buy out clause where you need to pay to take over ownership at the end of the contract or continue purchasing energy
    • Requirement to purchase all power produce regardless of your usage
    • If the energy provider is also a retailer they can request you remain with them for your retail electricity


Is The Provider The Installer?

Most of the time the Energy Provider and the Installer will not be the same. The provider will usually engage a third party installer. There may be opportunity to discuss the design/installer with your provider.


Can I Sign Up For A Power Purchase Agreement if I’m Renting?

Yes you can. Depending on the providers terms you can sign a short term contract such as 12 months. The homeowner will need to commit to installing the panels long term. The contract is free to be taken on by the next renter in the home. Conditions would vary from each provider.


How Do I Know If The System Is Working?

It is in the providers interest for the system to be functioning at top capacity. They will install a smart metre to allow them to monitor the system output and quickly detect any issues.

Moving or Selling?

If you need to sell your home you have options. Buy out your contract and sell the systems as part of your home or allow the new owners to take on the contract. Each providers conditions will apply.


How Much Will I Save With A Power Purchase Agreement?

While a PPA will have you see a reduction in your energy costs, on average around 10-15%, without an upfront cost, customers can make good savings. In most cases however, if the owner can purchase their own system upfront, the long term savings will be larger.

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If you’ve been considering solar for your home or business contact us for a free assessment or use our calculator below.

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Related Tag: Solar System Installation