A Power Purchase Agreement (PPA)

A Power Purchase Agreement (PPA)

Power Purchase Agreement (PPA) often refers to a long-term electricity supply agreement between two parties, usually between a power producer and a consumer. The customer buys the system’s electric output for a predetermined period. The PPA defines the conditions of the agreement, such as the amount of electricity to be supplied, negotiated prices and penalties for non-compliance.

Under a PPA, the customer signs a contract with a third-party developer to purchase power generated by solar panels or other forms of energy generation on a facility’s roof or nearby location. The customer is known as the offtaker, or the purchaser of power. While the customer/offtaker often provides the physical space to host the system, this is not a requirement and the host and customer/offtaker may be separate entities in leased spaces. The developer and its investors own the equipment for the duration of the PPA. The developer typically provides initial project coordination services such as bridge financing, design, and permitting with little-to-no cost to the customer. Equipment installation may be completed in-house by the developer or by a contracted installer.

The electric output generated by the energy system is purchased by the customer at a rate that is generally lower than the utility’s retail rate, generating immediate cost savings. The PPA rate usually increases by 1-5% each year for the contract term to account for gradual decreases in system operational efficiency and operating and maintenance costs and increases in the retail rate of electricity. PPAs are generally long-term agreements. At the end of the contract term, the customer may extend the term, purchase the system from the developer, or have the equipment removed from the property.

At Aptech Africa, we offer PPA to commercial and Industrial clients as well as businesses. Contact us to find out more.

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