A solar power purchase agreement (PPA) outlines the terms under which a solar provider agrees to install and maintain a solar energy system on your property, and in return, you agree to purchase the generated electricity. Here are some critical factors to consider before signing a solar power purchase agreement.
Understanding the Rate Structure
The rate at which you'll be purchasing solar electricity is one of the most important elements of a PPA. Rates can be flat, escalating, or de-escalating. Make sure to understand how your rates will change over the term of the contract, and ensure these rates are explicitly defined.
Duration of the Agreement
PPAs often lock you into long-term contracts that can last for many years. It's essential to assess whether you're comfortable with the length of the commitment and understand what happens if you sell your property before the contract term expires.
Maintenance and Repairs
Typically, the solar provider is responsible for the maintenance and repair of the solar installation. Still, the specifics can vary. Ensure that the agreement specifies who is responsible for maintenance, the process for repairs, and what happens if the system underperforms.
Like any long-term contract, there will likely be clauses that outline the terms under which the agreement can be terminated. Be sure you understand the grounds for termination from both sides. Is there a penalty for early termination? Knowing your exit options can save you future headaches.
Energy Production Guarantees
Some PPAs will include an energy production guarantee, ensuring that the solar system will produce a minimum amount of electricity. Failure to meet these guarantees often results in some form of compensation to the buyer. Make sure to look for this clause and understand its terms fully.
Renewal and End-of-Term Options
What happens when the contract term is up? Does the agreement renew automatically? Can you purchase the solar system outright, and if so, how is that price calculated? Understanding your options at the end of the term will help you prepare for the future.
Financial Incentives and Tax Implications
Various federal, state, and local incentives can make solar power more financially attractive. Ensure you understand who gets to avail of these incentives—the buyer or the solar provider. Often, the provider will apply these as discounts on your rate, but it's crucial to have this outlined in the agreement.
Legal and Compliance Obligations
Installing a solar system may require permits and compliance with local building codes. The agreement should specify who is responsible for obtaining these permits and ensuring that the system meets all regulatory requirements.
It's advisable to have a legal expert review the PPA before you sign it. They can help you understand any complex clauses and make sure the agreement serves your interests.
Contact a local service to learn more about power purchase agreements.