Solar Power Purchase Agreements – A Primer
Solar Power Purchase Agreements Defined
A solar Power Purchase Agreement (“PPA”) is a contract between an electrical consumer, or host, and the owner of
a solar electric facility for the purchase and sale of the facility‟s electrical output. The electrical facility is located
on the host‟s property and its output is sold to the host at a specified price over the length of the contract (generally
15 – 20 years). The electricity initially is priced 5% - 10% lower then the host‟s average cost of grid-sourced
The solar facilities behind PPAs are most often financed by a third party so the buyer has no capital outlay, or
required investment. And that means the buyer can focus their cash on core business needs. PPAs match the
investment appetite of investors who can use available tax credits and other economic benefits of the project with
large electricity users who are concerned about rising utility rates and want to find an economically attractive way
to hedge a portion of their current and future electricity costs.
PPAs are increasingly popular mechanisms allowing companies and organizations to make their operations more
sustainable and be a part of the climate change solution set. They are proving to be a major engine of growth for the
solar power industry.
Benefits of SPPAs
The upfront cost of a solar or wind system deters many companies from choosing these clean sources of energy. In
addition, many companies want to conserve their cash investments for their core businesses, and not to diversify
into energy generation. For these commercial customers, the SPPA approach is ideal. It allows commercial entities
to “go green” with other people‟s money, capture the benefits of being a green organization, and save money on
their electricity costs.
Unlike power generated from fossil fuels and nuclear energy where the price is bound to rise and keep rising, the
“current and future cost” from solar power facilities is driven by fixed pricing terms, thus eliminating the pricing
uncertainty of future electricity rates. What‟s more sunshine is clean, emits no carbon or other harmful emissions
and can earn the customer major PR benefits and employee goodwill.
Who’s Using SPPAs?
Many large businesses such as Kohl‟s and Wal-Mart department stores, and a variety of institutions such as the
Denver International Airport and numerous water management operations use SPPAs for buying solar electricity.
Public and private schools, colleges and universities, sports arenas, commercial operations that are in high-cost
utility markets, want to hedge future costs, and want the marketing and employee benefits of being green.
The third parties providing the financing for these projects see them as excellent investments because the contracts
ensure payment and the product being supplied is essential to the customer‟s operations. Legally, the third party is
the owner of the solar electric system and receives the benefit of the federal and state tax incentives, some of which
can significantly reduce their taxable income.
In most SPPA transactions, the commercial host has an option to purchase the facility at various times during the
length of the contract, the first opportunity being in the 6th year at the earliest. Major commercial banks such as
Goldman Sachs, Morgan Stanley and J P. Morgan Chase are among the financial institutions that provide financing
by connecting the host with the financial assets of their wealthy clientele.
Primer from Standard Solar on Solar Power Purchase Agreements – page 1 of 3
What Type of Electricity User Is A Good Prospect For A Solar Power Purchase Agreement?
- needs more than 350,000 megawatt hours of electricity annually
- controls their property for the term of the SPPA
- has an excellent credit rating
- has a at least 15,000 square feet of un-shaded space for solar panels
- is located in a state with favorable incentives
Standard Solar and other SPPA Participants
Standard Solar performs several integral roles and thereby simplifies the system design and SPPA contracting, as
well as, the installation, operation, monitoring and maintenance of the equipment. In other words, it is the company
you hire and rely on for turnkey solar installation, integration and finance.
Standard Solar maintains relationships with proven and cutting-edge suppliers of solar equipment, financial
institutions and any needed contractors, ensuring the optimal match for your project. And our seasoned industry
professionals have a track record of success keeping solar projects on track and are experts at avoiding unnecessary
headaches and startup delays. If there is question or a problem at any step in the process, Standard Solar is your ally
at every turn. Having one company to turn to keeps the transaction costs to a minimum and rewards you with a
competitive price for electricity for the term of the SPPA.
1. Standard Solar begins by assessing how much electricity can be produced from the space available on your
rooftop or adjacent land.
2. Based on the amount of electricity needed and the available area, Standard Solar scales the proposed solar
electric facility to offset the most costly grid electricity and delivers a preliminary term sheet for the client to
3. Once the client and Standard Solar reach an accord the SPPA document is drafted to incorporate the agreed upon
terms and final SPPA negotiations begin.
4. Standard Solar begins its detailed project development plan and introduces the investment opportunity to its
banking partners to begin the underwriting process.
5. With a signed and financially underwritten contract and the roles for Standard Solar defined, certified company
technicians build the system and prepare it to begin generating electricity.
6. Before you can begin taking electricity from modules, Standard Solar will make specific arrangements with your
electric utility. They include but are not limited to:
a. Terms of “interconnecting” with your regulated electricity distributor, or utility.
b. How any excess electricity generated by your facility under “net metering” provisions in your state
earns you a credit towards future power needed from the utility.
c. How the electricity can avoid peak demand charges.
7. You flip the „switch,‟ with as much fanfare as is appropriate for your company, your community and important
8. Standard Solar, remotely monitors the system ensuring optimal performance. Any maintenance issue is the
Standard Solar‟s responsibility.
9. You go on running and growing your business!
Primer from Standard Solar on Solar Power Purchase Agreements – page 2 of 3
“A Customer‟s Guide to Solar Power Purchase Agreements,” October 2008, Rahus Institute, www.californiasolarcenter.org/sppa.html;
“Guide to Purchasing Green Power,” Green Power Partnership, September 2004,
“Solar Power Services: How PPAs Are Changing the PV Value Chain,” executive summary, GreenTech Media, February 2008,
“Solar Photovoltaic Financing: Deployment on Public Property by State and Local Governments,: National Renewable Energy Laboratory,
May 2008, www.nrel.gov/docs/fy08osti/43115.pdf
Primer from Standard Solar on Solar Power Purchase Agreements – page 3 of 3