Finance

Solar PPA (Power Purchase Agreement)

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What is a Power Purchase Agreement?

A Solar PPA or Power Purchase Agreement is an agreement under which a PPA investor (developer) arranges for the design, financing and installation of a solar PV system at a commercial site, at no upfront cost to the site operator (usually, but not always, the site owner).

Spirit’s role is to provide initial design and installation, as well as on-going monitoring and maintenance services to the developer, with end-to-end project management using our in-house design and installation team. 

The developer sells the power generated to the site operator at a fixed rate that is below the rate available via the grid. This lower electricity price serves to offset the customer’s purchase of electricity from the grid. 

As well as receiving income from the site operator, the developer also receives the Feed-in Tariff in respect of any solar energy generated, as well as an export tariff in respect of any solar energy exported to the grid.  

The term of a solar PPA is typically 25 years. The developer is responsible for the operation and maintenance of the system for the duration of the agreement. At the end of the PPA contract term, a customer may be able to extend the PPA, have the developer remove the system or choose to buy the system from the developer.

Benefits of PPAs

  • No or low upfront capital costs:The developer handles the upfront costs of sizing, procuring and installing the solar PV system. Without any upfront investment, the site owner is able to benefit from solar energy and start saving money as soon as the system becomes operational.
  • Reduced energy costs, with known inflation rates: Solar PPAs provide a fixed, predictable cost of electricity for the duration of the agreement. The fixed cost per kWh paid for solar energy typically inflates either at a known fixed rate, or at the rate of RPI.  Both inflation rates are below expected electricity price inflation.
  • Limited risk:The developer is responsible for all installation and operating permissions, system performance and operating risk.