Power purchase agreements (PPAs) are solar power contracts in which customers and third-party companies celebrate an exchange.
Companies are responsible for designing, building, installing, and maintaining a commercial solar energy system.
Customers give up part of their land for the installation of solar panels.
Even though PPAs may be profitable for both customers and sellers, there are some drawbacks.
One of the most critical challenges for customers is dealing with the duration of the contract.
The contract lasts 20 to 25 years, with the probability of paying a fee if customers want to end it earlier.
The contract term leaves customers with an uncertain purchase decision, which can sometimes be challenging.
There is an option for customers that allow them to end the contract and purchase the solar energy system earlier o cope with time-related uncertainty. These are PPAs buyouts.
The objective of PPAs buyouts is to make customers save money by providing a low-cost tariff to buy the ownership of solar panels.
This article will discuss the feasibility of buying a PPA, considering the cost-benefit and discussing its environmental impact.
PPA buyouts’ cost-benefit considerations
A PPA buyout renegotiates the original PPA contract with solar companies. Customers may want to consider the following points to evaluate the cost-benefit of purchasing a PPA buyout:
Evaluate the PPA buyout agreement and identify the terms of buying and ownership.
It is usually not profitable to partially buy solar energy systems. For example, the customer that has made a buyout would have to incur maintenance costs.
This scenario would not be ideal if companies still owned rights for some energy produced.
Analyze the financial mechanisms for the buyout. The buyout may be too expensive, and families must choose the best financial plans, even for sustainability purposes.
Map the risks inherent in solar energy systems. The household or business might be exposed to natural hazards such as earthquakes or floods. The devices plugged into the solar energy system might be sensible to overloads.
Evaluate all the costs of producing solar energy: the PPA and the residual energy costs. Having accountability for costs is essential to make an informed decision.
In cost evaluation, it is also important to consider the intertemporal issues that might affect tariffs. The financial benefit evaluation may require customers to project energy production and maintenance costs.
Installing solar energy systems is not a trivial decision for customers. But the possibility of purchasing a PPA earlier gives customers extra incentives to transition to solar energy.
PPAs are long-term contracts, so the buyout represents additional options customers can consider when purchasing a PPA. However, the minimum time window for PPA buyouts is seven years.
Who may benefit from PPA buyouts?
As mentioned above, there are several factors to consider when doing a PPA buyout. As the decision is financial, this benefit can be more attractive to businesses that want to save money by using solar energy.
Eventually, the PPA leads to total ownership of the solar energy system, which is the ideal case that produces higher savings.
A solar energy system purchased by cash could be unaffordable for most businesses that prioritize other types of investments.
Some businesses may be seeking to transition to solar energy as it would produce a lot of savings, so that PPA buyouts may fit their needs.
In general, whoever is interested in total ownership of a solar energy system and finds it too expensive to buy by cash or apply for a solar loan, may be a candidate for a PPA buyout.
Not everyone is willing to invest long-term, so the government gives financial incentives to solar energy production in multiple states.
Environmental benefits of PPA buyouts
Customers must know that there is an additional benefit to owning solar energy production. Solar energy is clean energy that mitigates greenhouse gas emissions.
The United States is in debt with the rest of the world because of greenhouse gases, as it is the country that emits the most. For this reason, the impact of a transition to solar energy is outstanding.
For most customers, this decision might be reduced to a financial decision, but it is essential to consider the environmental implications.
The US government is actively fighting greenhouse gas emissions and climate change, so there are opportunities to negotiate this transition.
This article provided valuable information on PPA buyouts from multiple points of view. A PPA buyout is not a trivial decision, and several points are needed to be considered.
In terms of cost-benefit, it is worth performing a complete financial evaluation with a projection of profits and a mapping of possible losses and risks associated with the future.
As a considerable amount of information is considered, this benefit may be more suitable for business than residential use.
Customers are worried the most about prices. The sustainability of a PPA buyout ultimately lies in the prices.
Kannan and Vakeesan (2016) argue that solar energy would be the most demanded energy source, as biofuels will eventually be depleted. Modern societies require more and more energy to operate normally. The population is growing steadily.
Even though it is hard to tell what is going to happen in the future, it is clear that ownership of a solar energy system would create economic advantages for customers.
Hence, the earlier the investment, the more significant benefits could be expected from the transition to solar energy.
Additionally, the environmental impact of a systematic transition to clean energies would be high. This article recommends considering these aspects and making an informed decision.
- Kannan, N., & Vakeesan, D. (2016). Solar energy for the future world: – A review. In Renewable and Sustainable Energy Reviews (Vol. 62, pp. 1092–1105). Elsevier BV. https://doi.org/10.1016/j.rser.2016.05.022