Solar Power Purchase Agreement (PPA): Definition & Meaning -
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Solar Power Purchase Agreement (PPA): Definition & Meaning

Solar Power Purchase Agreement Definition


A Solar Power Purchase Agreement (PPA) is a financial arrangement in which a third-party developer owns, operates, and maintains a solar array or solar module system, while the host customer agrees to site the system on their property and purchase the electricity generated by the system for a predetermined period. Essentially, it is a contractual agreement to buy solar power in terms of kilowatt-hour (kWh) from the system's producer at a set rate.

There are several distinguishing features of a Solar PPA:

No Upfront Capital Cost: The developer bears the initial cost of installing the solar system, removing a major financial barrier for the customer.

Fixed Energy Rate: The customer typically benefits from predictable electricity rates over the duration of the agreement, which could offer protection against fluctuating and potentially rising utility rates.

Maintenance and Operation: Since the third-party developer owns the system, they are responsible for operation, maintenance, monitoring, and repairs. This reduces the burden on the customer.

Term Duration: PPAs usually last between 10 to 25 years. At the end of the PPA contract term, a customer may have options to extend the agreement, purchase the system, or have it removed.

Scalable and Adaptable: PPAs can be structured in various ways to cater to the host's needs, with arrangements suitable for both residential and large-scale commercial or industrial projects.

The Solar PPA model has greatly facilitated the adoption of solar energy by reducing financial barriers and complexities for end users, promoting the growth of renewable energy sources.


"By entering a Solar Power Purchase Agreement, the company was able to adopt solar energy without the need for a significant initial investment."

Know your solar definitions to learn and understand more about solar power. Develop your solar lingo here.

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