Installation of solar panels can lower monthly power costs. The initial investment in solar panel installations is steep but can be financed with third-party financing.
One such financial recourse is a Power Purchase Agreement (PPA). PPA allows a third-party developer to fund, own and operate the solar power system on a customer’s property. The developer takes responsibility for the installation of solar panels and their maintenance. The developer sells the electricity generated to the host customer at a fixed tariff generally lower than the grid power rate. PPA contracts usually last between 10 and 25 years.
Benefits of PPA
A PPA benefits the consumer by providing stable, low-cost power with no initial investment. On the other hand, a PPA also allows the developer to profit from both tax credits and the sale of power to the client.
The following are the advantages of a PPA-funded installation of solar panels—
No upfront capital costs and reduced energy costs
PPAs cover 100% of the costs of solar panel installations. The cost of the energy generated by the solar panels is fixed at a lower rate than the local rate of electricity. Without any capital cost, the customer can start saving money as soon as the system is operational. These features make the PPA a financially advantageous contract.
Limited risk
Buyers and developers can lower their financial risks by entering a PPA. The developer takes responsibility for the system’s maintenance and operation under a PPA. As such, the customer is not exposed to any operational risks.
The rate of PPA tariff typically rises by 1-5% per year for the contract duration.
Solar panels go through a gradual decline in operational efficiency, and the rise in tariff makes up for the increasing maintenance costs that come with the decreasing efficiency. Thus, providing the developer with a financially secure contract.
Things to consider before signing a PPA-funded installation of solar panels
Site upgrades
The host may be required to renovate the site for the installation of solar panels. Renovations help comply with local legislation and reduce the installation cost. Site upgrades may involve, for example, clearing foliage that obstructs the sun’s direct rays or fixing the roof.
Higher property taxes
Solar PV systems tend to increase the residential property values of the site, which could also increase property taxes. However, property tax increase policies vary by state and might not apply to every site.
Concluding Thoughts on the State of the Market for Third-party Solar Funding
Third-party financing models are a popular choice for funding solar energy systems. They have revolutionary because they cut down on extensive installation costs. Other types of third-party funding include ‘solar leasing’ and ‘solar financing’.
Solar leasing allows customers to rent the system from a third party for a fixed rate or fee.
In solar financing, the buyer owns the system after paying off the loan to a third party.
Both the above-mentioned solar funding alternatives are different from PPAs in that they do not include the sale of energy. It would help the buyer to know the regulatory and legislative challenges of selling/buying solar energy.
Nimbus Solar Solutions: Ushering innovation in renewable solar solutions
Nimbus Solar Solutions was established to diversify and enhance solar solutions for residential, commercial, industrial and agricultural sectors. They supply a wide range of solar products using the best components in the industry. They are backed by a team of experienced and dedicated engineers outfitted with state-of-the-art solar technology.
With a pan-Indian presence, Nimbus specialises in providing highly efficient and customised products and expert technical services for rooftop solar panel installation and maintenance.
For more information, visit: https://nimbussolar.in/
