Renewable energy is all the rage, and it’s no surprise why. Homes with cleaner energy are usually more comfortable to reside in because they have better indoor air quality and lower energy bills. If you’re interested in making your home more efficient, you may have heard of a power purchase agreement. If you aren’t too sure what that is, no worries. Below, we’re answering the most common questions about these agreements, how they differ from a lease, and what you can expect from both of them.
What is a Power Purchase Agreement?
First and foremost, what exactly is a power purchase agreement?
A power purchase agreement, also known as a PPA (although sometimes casually referred to as a PPA agreement), is a financial agreement in which a developer agrees, designs, and installs a solar energy system on someone’s property at little to no cost. This process also includes getting a permit for the installation, as well as financing the project as a whole.
The developer usually sells the solar energy from the system at a fixed rate that is usually lower than the local utility’s rate. This allows the customer to get a lower electricity bill, while the developer sees a profit.
How Long Do PPAs Last?
The average power purchase agreement can last anywhere between 15-25 years. During this period, the developer remains in charge of the operation and any required maintenance. The customer does have the option of extending the agreement at the end of the term. Likewise, the customer can also choose to purchase the solar energy system directly from the developer or have the system removed completely.
Benefits of PPAs
The decision to go with a power purchase agreement is a big one, so it’s important that you’re familiar with the benefits associated with moving forward with one. Here are a few of the top benefits of a PPA:
- Little to no risk. Since the developer is the one who is solely responsible for the operation and maintenance during the designated period the agreement is in effect, you (as the customer) will have little to no risk involved.
- Reduced costs on energy bills: As mentioned above, a power purchase agreement can save you money on your energy bills. This is because a power purchase agreement is a fixed cost for the duration of the agreement. In other words, you could be easily paying the same price on your energy bills for up to 25 years, which is a huge incentive for homeowners and commercial property owners. Customers and developers can opt for small increases over time by about 2-5%.
- Little to no upfront costs. Unlike other installations that require a down payment, you won’t have to pay a dime out of pocket to set up a PPA. The developer pays for these upfront costs, including getting and installing the solar energy system. This allows customers to start saving money right away.
- Possibly increases the value of your property. Commercial properties that have an existing solar energy system have a higher value, according to multiple studies. If you decide to sell your property while an agreement is in place, the PPA can be transferred to the new building owners. This is because the PPA is attached to the property.
- Ability to leverage tax credits. Developers are able to utilise different tax credits to reduce the cost of the solar energy system.
While this is not an exhaustive list, they are just a few of the benefits of utilising a PPA for a solar energy system.
How Does All This Differ From a Lease?
A lease is a type of contractual agreement that requires the customer to pay money to use a product. In other words, you’re essentially renting out a product that isn’t your specific property. In terms of solar energy systems, this is when a customer leases the solar panels and other components for a period of time (usually between 10-15 years) and makes monthly payments to the company that provided the solar equipment.
So when it comes to a PPA and a lease, which one’s better? The answer is that they both provide their advantages and it is completely dependent on the customer’s needs at the time. Utilising a PPA instead of a lease is the better alternative if you don’t want to be responsible for ongoing maintenance costs.
PPAs for Commercial Property Owners
If you’re a commercial property owner, a corporate power purchase agreement works pretty much the same way. The other difference is in regards to the amount of time you’re leasing the building. The average leaseholder leases a building for 10 years, so if you plan on moving during that time with an existing PPA in place, it could pose some challenges.
Unlike a homebuyer who may solely purchase a home due to an existing solar panel system, a property owner may not be interested. Or, they could not have the credit needed to overtake the agreement. While these are not impossible situations to overcome, they can make it a bit more difficult when it’s time to sell.
If you go to sell your building, the PPA would have to be transferred to a new owner. Or, in some cases, you may be able to buy out the contract entirely. This is why it’s usually recommended that commercial property owners or leaseholders remain in the same space for the duration of the power purchase agreement.
Contact Alternative Energy Ireland for Your PPA Power Purchase Agreement Solar Energy Installation Needs Today
If you’re interested in moving forward with a solar energy system for either your home, farm, or business, contact Alternative Energy Ireland (AEI). We proudly serve all of Ireland with their power purchase agreement solar energy needs. Furthermore, we can answer any questions you may have about PPA power purchase agreements. Visit us on the web or give us a call at 057 930 0100.