A solar power purchase agreement (PPA) is a financial agreement where a developer arranges for the design, permitting, financing and installation of a solar energy on a customer's property at little to no cost. The developer sells the power generated to the host customer at a fixed rate that is typically lower than local utility's retail rate. This lower electricity price serves to offset the customer's purchase of electricity from the grid while the developer receives the income from these sales of electricity as well as any tax credits and other incentives generated from the system. PPAs typically range from 10 to 25 years and the developer remains responsible for the operation and maintenance of the system for the duration of the agreement. At the end of the PPA contract term, a customer may be able to extend the PPA, have the developer remove the system or choose to buy the solar energy system from the developer.
Under a PPA, the seller is the entity that owns the project. In most cases, the seller is organized as a special purpose entity whose main purpose is to facilitate non-recourse project financing.
Under a PPA, The Buyer is typically a utility that purchases the electricity to meet its customers needs. In the case of distributed generation involving a commercial PPA variant, the buyer may be the occupant of the building, a business, school, or government for example. Electricity traders may also enter into PPA with the seller.