Solar PPA Agreement: What Is It And How Does PPA For Solar Work?
Solar Power Purchase Agreement or Solar PPA is one of the ways you can finance your residential, commercial or industrial solar project. But what is Solar PPA and how does it work?
Heavy consumers of electricity (typically consuming 300,000 units of electricity per annum or more) commonly opt for Solar PPA option. Generally industrial and big commercial users fall under this category of users.
Solar EPC Companies like Insolergy facilitate solar finance for such projects through PPA and EMI options.
What is Solar PPA Agreement?
First of all,solar PPA is an agreement between a solar project developer and a power purchaser and is one of the solar financing options.
Essentially, in the solar PPA arrangement, the system is installed at the end users or the consumer’s premises by a third party, who then charges the consumer on monthly basis. It is an excellent method of using solar power without worrying about capital cost of upfront solar equipment investment. The power purchaser/user buys power from the developer at prices reduced by almost 25% to 40%. Users are able to avoid fluctuating energy prices as they agree to a PPA rate at the beginning of the contract.
The developer is in complete charge of the maintenance and operation of this solar installation, though the user has to fulfill a quota of power consumption to avail the maintenance service. Most PPA agreements are for around 25 years, after which the user can extend the contract or discontinue the arrangement
Solar PPA is also known as pay-as-you-go.
Benefits of solar PPA finance
>There is virtually no upfront cost to the power consumer, since it is taken care of by the developer.
>The tariffs are decided for the entire term of the PPA ensuring 20 to 30 percent below the grid power supply tariffs, thus ensuring savings.
>The power purchaser need not deal with the system design and approval processes.
>Also, the consumer need not worry about operational and maintenance costs as well.
How does solar PPA work?
How solar financing works under PPA is as described below:
Step 1: PPA solar rate
The project developer offers PPA rate to the customer as a term of contract.
Step 2: Site survey
Project developer then understands the interest of consumer in the solar plant, and conducts site survey and detailed analysis of their consumption profile.
Step 3: PPA solar agreement terms
The project developer and the consumer mutually agrees on the contract terms, which include the proposed PPA tariff for the entire duration of the PPA contract, bank guarantee, security deposit, and the residual value of the project at the end of the contract.
Step 4: Implementation
Finally, after signing the contract, project developer installs and commissions the solar plant at the consumer’s premises. Consequently, the project developer can start billing the customer from the day one of the successfully commissioned solar power plant. The ownership of the plant remains with the project developer till the end of the PPA contract.
- In some cases, the consumer may want to purchase the solar plant. Consumer can also buy the solar plant after few years of operation at a pre-agreed rate according to the PPA contract.
- Consumer provides bank guarantee and security deposit. Project developer can liquidate this security in the event of payment delays or default.