What in The World Is A PPA?

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Introduction: What in The World Is A PPA?

There’s no denying the importance of solar power in our changing world. With more extreme temperatures and weather patterns around the globe, our reliance on fossil fuels must be challenged by green technology, such as solar energy. However, even as the costs of solar panel installations plummet year after year, they can still present a steep upfront cost. This cost can be especially difficult to overcome if you’re a new or smaller company. Thankfully, though, there are options to take advantage of green energy without having to purchase an entire solar panel system yourself. Today, we’re going to be taking a look at one of those options – a Power Purchase Agreement, or PPA.

What is a PPA?

Though the world of PPAs can be confusing at first, the basic concept is fairly simple. Power Purchase Agreements, at their most fundamental level, typically involve purchasing solar-generated electricity without also purchasing an entire solar panel system. This can be an attractive option for a wide range of companies interested in solar electricity, from smaller companies who are put off by the up-front cost of installation to groups of companies who want to go into solar electricity together.

There are also different types of PPAs – the most common being on-site or direct PPAs and virtual PPAs. Let’s explore the differences between the two.

Direct PPA

A direct PPA is quite simple. Once you enter into this type of agreement, a solar provider will install a system on the rooftop or somewhere on your worksite for “free.” Along with this installation comes a contract between you and the installer, so that you can buy electricity from them at a fixed cost. The company that installed the panels will also help with maintenance and upkeep.

With this arrangement, you’re locked into one price for the electricity. This can be quite attractive, especially if you think that buying from the grid will be more expensive or if you distrust the volatility of the traditional electricity market. However, you can also still tap into the grid, since you’re still hooked up to your normal utilities. This way, your company can still take in electricity on days where the solar panel system just isn’t enough. Finally, many of these contracts will end with the PPA provider passing on ownership of the solar panels to your company.

Virtual PPA

On the other hand, we have virtual PPAs, which are somewhat more indirect. A typical PPA of this type typically involves three different organizations – the company developing the solar energy system, the normal utility company, and a third-party company. The third-party company finances the solar energy system of the first company, guaranteeing a fixed price for the electricity it sells to the grid – the normal utility company. If the electricity sells for less, the third-party company pays the difference. If the electricity sells for more, then that third-party company will actually make money. The biggest value for the third-party company, though, is that they can claim that they’re “100% renewable,” since they’re helping to finance the development of a solar energy system.

Pros and Cons

There are plenty of benefits to Power Purchase Agreements. First and foremost, there’s no big upfront cost to install an entire solar energy system. With both types of PPAs, a company can take advantage of solar power without installing it themselves. That can be an attractive proposition to plenty of organizations. These PPAs, typically involving fixed prices for electricity, can also hedge against any future volatility in the normal electrical grid. And, as with all solar energy systems, they can help with reductions in the cost of electricity and, of course, can help save the environment. It’s difficult not to appreciate that kind of setup.

However, there are cons as well. Over time, the costs can equal themselves out. Installing your own solar panel system can be a bigger upfront cost, but you’ll own the system forever and will save you money on electricity over time. If your electrical needs can be taken care of by solar energy, then all you’re paying for is maintenance and upkeep. Entering into a long-term contract can also be risky, as well. Given the volatility of the electrical market, it’s quite possible that a PPA will have you paying less for electricity. However, that isn’t certain. A PPA might also lock you into a higher price for electricity.

Conclusion

Adopting solar energy is extremely important, both from an economic perspective and an environmental one. However, the costs can still be difficult to overcome. With a PPA, it’s possible to take advantage of solar power with a potentially more attractive financing arrangement. As you and your company look to solar power, it’s important to keep PPAs in mind. SEO Keywords Targeted

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