What is a PPA (Power Purchase Agreement)?
A PPA, or Power Purchase Agreement, is a common financing structure for clean energy systems.
A Power Purchase Agreement (PPA) is one of the most common ways to finance a commercial clean energy system — and one of the most misunderstood.
Here's how it works: instead of purchasing a solar system outright, a third-party investor owns and operates the system on your property. You simply pay for the electricity it generates, typically at a rate that's lower than what you'd pay your utility. The third party handles installation, maintenance, and repairs over the life of the agreement — usually 15 to 25 years.
Why do PPAs exist? The economics work because the system owner can claim federal tax incentives (like the Investment Tax Credit) that many commercial tenants and property owners can't use directly. They pass a portion of that value to you through a discounted electricity rate.
The main benefits for the buyer:
- No upfront capital required
- Immediate savings from day one
- Predictable electricity costs over the contract term
- No responsibility for system performance or maintenance
One important caveat: PPAs are only available in states and jurisdictions where third-party ownership of energy generation is permitted. Some regulated utility markets restrict this. Before pursuing a PPA, confirm that your state allows it.