Power Purchase Agreement
A long-term contract in which a solar asset owner sells the electricity generated by a PV system to an offtaker at a fixed or indexed per-kWh price, letting the offtaker use solar power without buying the hardware outright.
A power purchase agreement shifts the capital burden of going solar from the offtaker onto the developer. The developer funds, installs, and maintains the system, then recovers their investment through a per-kWh rate agreed up front. That rate typically sits below the host's current grid tariff, which is the central value proposition.
PPAs are most common in commercial and industrial deployments where the electricity demand is large, predictable, and creditworthy enough to underwrite a 20-year contract. They are also used residentially in markets where direct ownership incentives are weak.
Why it matters for solar installers
Installers who only sell cash and loan deals leave a large segment of the market on the table. Adding PPA as a financing option requires accurate lifetime production modeling, escalator modeling (most PPAs have a 1 to 3 percent annual price step), and a proposal that clearly compares customer savings under each deal type. solarVis' proposal engine ships with PPA math built in, so you can quote all three in a single customer meeting.
Common questions
- How is a PPA different from a lease?
- A lease charges a fixed monthly fee for the hardware regardless of production. A PPA charges only for the kWh the system actually delivers, so the customer pays for energy, not equipment.
- Who owns the system under a PPA?
- The solar developer or a third-party financier owns the system for the contract term, usually 15 to 25 years. The offtaker hosts the system on their roof or land and buys the electricity it produces.
- Can the offtaker buy the system at the end of the term?
- Most PPAs include a buyout clause at fair market value, along with options to extend the contract or have the system removed at no cost to the host.
