Power Purchase Agreements are common in the context of renewable energy development, but understanding what they entail is a point of confusion among many property owners and real estate agents alike. In this guide, we will cover some commonly asked questions about PPAs and provide answers to help you better understand this important energy purchasing arrangement.
What is a PPA?
In the context of renewable energy, a Power Purchase Agreements (PPA) is a long term-agreement between a renewable energy producer (eg; a solar energy developer) and a power purchaser, such as an energy retailer or a utility company.
How does a PPA work?
In a Power Purchase Agreement (PPA), the energy producer commits to supplying a specified quantity of electricity to the power purchaser for a predetermined duration, typically spanning 10 to 30 years. Throughout this agreement, the power purchaser remunerates a fixed amount per unit of electricity, providing the energy producer with revenue certainty and the purchaser with price stability, all without the need for a substantial upfront capital investment. There are a few different types of PPAs, and specific PPAs will have their own terms and conditions, so each contract varies.
What is the difference between a PPA and a lease?
In a solar land lease, the solar energy developer pays the property owner a fixed rate (typically per acre per year) to install solar panels on their property to produce solar energy. The solar energy developer typically sells the electricity to the local utility company. With a solar lease, the property owner is typically not involved with PPAs, as this is arranged between the local utility company and the renewable energy company.
When it comes to residential solar systems, the key distinction between a solar lease and a PPA lies in the payment method. In a solar lease, you make a fixed monthly rental payment in exchange for utilizing the solar system. On the other hand, with a PPA, you pay a predetermined rate per kWh of energy consumed from the solar panels. In this case, the developer covers the cost of the solar installation and sells the solar power to you at a fixed rate. Essentially, instead of leasing or purchasing the solar system, the property owner only pays for the power that they consume.
Neither solar PPAs nor solar leases offer a path to owning a solar system. In both cases, the third-party owner is generally responsible for all maintenance and repairs.
How are PPAs relevant to real estate?
The real estate industry and the renewable energy industry are rapidly becoming more intertwined as a result of the increase in green energy development across the United States. Renewable energy developers are constantly presenting property owners lease and purchase offers to utilize their property for renewable energy purposes, such as for solar farms or wind farms. That being said, it is important that real estate agents understand the basics of Power Purchase Agreements (PPA's) in the context of renewable energy so that they can better guide their clients through the process of leasing or selling their land to a renewable energy developer.
Property owners interested in leasing their property for renewable energy can receive a free report from LandGate detailing their property’s potential for different lease opportunities. Learn more about your most valuable asset and list for free today:
