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What is a Solar Power Purchase Agreement (PPA)?

Solar Power Purchase Agreement

Over the past 3 years, California and other states have seen a large increase in Solar Lease programs and Solar Power Purchase Agreement programs. Both types of programs allow property owners (residential and business) to power their property with solar energy without a large upfront investment. But what is the difference between a solar lease and a power purchase agreement?

A solar power purchase agreement (PPA) is a long term contract to buy electricity produced by the solar system. The site owner does not own the solar system, they are buying the electricity produced from the equipment (hence, “power purchase”). This differs from a solar lease, which is a long term contract to lease the PV solar equipment.

The PPA contract is usually for 15 to 20 years. Usually the homeowner will have the option to purchase the system at the end of the contract or they may choose to have it removed.

The rate that the site owner pays the solar system owner for the electricity is set out in the contract and usually increases over the course of the agreement (although there is not guarantee that the rate will be consistent with prices being charged for electricity from the local utility).

The California Solar Energy Industries Association (CALSEIA) recommends individual's who are considering a PPA to ask lots of questions, including:

1) Who is the installation company?

2) What is the assumed inflation rate for the solar electricity payments?

3) Does the company provide production guarantees?

4) Is the homeowner responsible for any of the maintenance or monitoring

5) What happens if the homeowner sells their home?

6) Who is insuring the system in the event of damage ?

7) Does the contract obligate the homeowner to buy the system at the end of the contract?

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