Our last financial blog focused on commercial financing options, today we are here to focus on just one of them and talk about power purchase agreements. It is important to weigh the pros and cons of each option for your specific needs. We are here to help every step of the way.
Power Purchase agreements or PPA’s are a type of finance option where a third party company owns your solar system. Your business purchases solar electricity from them at a discounted rate. Typically the discount is around 15-20% off standard electricity rates from Eversource or National Grid. Power Purchase agreements usually last between 10 and 25 years. At the end of your contract, you can either decide to buy out the system from the owner, extend your contract to continue purchasing electricity, or remove the system entirely
Utilizing a PPA is a good choice for your business if you cannot afford to purchase the system or use the tax benefits provided by going solar. And the best part of using a PPA is that there are no upfront costs. This means you don’t have to worry about a down payment. Instead, you just pay for the electricity which should always be cheaper than paying for regular utilities. Also, the panel owners assume the risk (though small) associated with the system. If your system stops production, the third party owner will typically know but if you notice first, you just call them and they’ll take care of it! (it is in their financial interest to do so!)
Although PPA’s are beneficial because they provide more opportunities for businesses to switch to solar, there can be some unfavorable aspects as well. The biggest con would be that you do not benefit from state and federal incentives. With a PPA, the third party owner owns the system and thus gets all the benefits. The system will reduce your monthly electric bills but you won’t see any tax savings or SMART payments. For this reason, although a PPA may save your business money, it will save you significantly less money than if you were to pay cash or get a different type of loan.
PPA’s are a good option for someone who is looking for a small amount of financial commitment. You’ll still pay that lower electricity rate and be able to help the planet by going solar! Next in the financial blog post series, we will cover operating leases which may be a better option for those people who want ownership benefits in the long run. Stay tuned!