Understanding Solar Power Purchase Agreements (PPAs)

Introduction

A Solar Power Purchase Agreement (PPA) is a financial arrangement that enables organizations to benefit from clean energy without incurring the upfront capital expenditure associated with solar power installations. In this article, we'll discuss the basics of Solar PPAs, the involved parties, and the types of Solar PPA structures. We'll also cover the information required to build a Solar PPA offer and what happens if the building changes ownership during the agreement period.

The Benefits of a Solar PPA

Solar PPAs create mutual value for both the offtaker (who has a demand for sustainable power) and investors (who fund the project and benefiting from tax incentives). Organizations can access clean energy without upfront costs, while solar developers can generate returns through energy sales, investment tax credits, and depreciation.

Types of Solar PPA Structures

There are two main Solar PPA structure types:

Owner PPA: Used when the building owner owns the relationship with the utility. The building owner acts as the offtaker and captures savings through reduced energy costs. The PPA Agreement is between the building owner and solar investor.

Tenant PPA:  Used when the tenant owns the relationship with the utility. The tenant acts as the offtaker and captures savings through reduced energy costs. The investor pays an annual roof rent fee to the building owner. The PPA Agreement is between the tenant and solar investor.

What is the Typical Duration of a PPA?

PPAs can have a duration of 15-25 years or may be coterminous with the lease, which means that customers are committed to purchasing electricity from the solar power provider for that period of time. This long-term commitment provides stability for the solar power provider, which allows them to finance the installation of the solar panels.

What Building Information is Required for a Solar PPA Offer?

1. Energy Usage: In the case that the building has not yet been developed, any indicative energy information would be helpful such as building type, square footage, current tenant’s current utility bills, BAU work hours etc. Learn more about energy usage.
2. Lease Term: Duration of the lease agreement.
3. Building Qualification Information: Answers questions related to potential project disqualifiers, such as roof age, plans to sell the property, and planned construction projects.

What Happens when Building Ownership Changes?

Owner PPA: If a change in building ownership occurs during the term of the agreement, the PPA may be terminated or bought out, or transferred to the new building owner.

Tenant PPA: If a change in building ownership occurs during the term of the agreement, the site lease may be transferred to the new owner, and the tenant has the option to continue under the same PPA agreement. If there is a change in tenancy, the PPA can be transferred to the new tenant.

Explore the Lumen Energy Platform

Lumen Energy provides you a fast track to clean energy across your portfolio. We connect you with PPA offers for viable properties, funded by leading investors who are ready to deploy capital towards your projects.

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