A Solar Power Purchase Agreement (SPPA) is a financial arrangement in which a third-party developer owns, operates, and maintains the photovoltaic (PV) system, and a host customer agrees to site the system on its roof or elsewhere on its property and purchases the system's electric output from the solar services provider for a predetermined period. This financial arrangement allows the host customer to receive stable, and sometimes lower cost electricity, while the solar services provider or another party acquires valuable financial benefits such as tax credits and income generated from the sale of electricity to the host customer.
With this business model, the host customer buys the services produced by the PV system rather than the PV system itself. This framework is referred to as the "solar services" model, and the developers who offer SPPAs are known as solar services providers. SPPA arrangements enable the host customer to avoid many of the traditional barriers to adoption for organizations looking to install solar systems: high up-front capital costs; system performance risk; and complex design and permitting processes. In addition, SPPA arrangements can be cash flow positive for the host customer from the day the system is commissioned.
Benefits for host customer
* No upfront capital cost.
* Predictable energy pricing.
* No system performance or operating risk.
* Projects can be cash flow positive from day one.
* Visibly demonstrable environmental commitment.
* Potential to make claims about being solar powered (if associated RECs are retained).
* Potential reduction in carbon footprint (if associated RECs are retained).
* Potential increase in property value.
* Support for local economy and job creation.
Challenges for host customer
* More complex negotiations and potentially higher transaction costs than buying PV system outright.
* Administrative cost of paying two separate electricity bills if system does not meet 100 percent of site's electric load.
* Potential increase in property taxes if property value is reassessed.
* Site lease may limit ability to make changes to property that would affect PV system performance or access to the system.
* Understand trade offs related to REC ownership/sale.