Power Purchase Agreements (PPAs): A Future-Ready Solar Financing Option
Read Time 3 mins |
Written by: Tom
The solar industry has seen considerable growth in recent years, largely influenced by financial models like the Power Purchase Agreement(PPA). While PPAs have been around for more than a decade, their renewed popularity is driven by the current economic landscape and policy changes. This growth is further catalyzed by service providers like Concord, which give funders the flexibility to offer PPAs in addition to traditional loans.
Understanding Power Purchase Agreements(PPAs):
Power Purchase Agreements, or PPAs, are financial agreements where a third-party developer owns, operates, and maintains the PV System. In this model, the homeowner agrees to host the system and purchase the electricity it produces at a predetermined rate. The benefits of this model are becoming increasingly evident to homeowners and funders.
Benefits of PPAs to Solar Customers:
No or Low Upfront Capital Costs: PPAs allow homeowners to access solar power without the financial hurdle of purchasing the system.
Reduced Energy Costs: Homeowners experience savings on their energy bills by buying electricity at a pre-agreed, often more affordable rate.
Limited Risk: Since the PV system is owned and maintained by a third-party developer, homeowners have less risk in terms of system performance and maintenance.
Better Leverage of Available Tax Credits: PPAs provide an avenue for homeowners to maximize available tax incentives.
Potential Increase in Property Value: Homes with solar installations often see an appreciation in market value.
The national PPA Growth Rate – CAGR is projected to be around 40% from 2023-2031.
2023 is expected to record a significant increase in the Third Party Owned(TPO) segment's capacity, following its lowest annual share in 2022.
In California, the TPO segment's growth is predicted to be bolstered by the ITC adders, with a 10% growth forecasted for 2024 and an average rate of 20% in the subsequent two years.
Key Growth Drivers:
YOY Utility Bill Increases: Rising utility bills are prompting consumers to consider more cost-effective and sustainable energy solutions.
Inflation Reduction Act(IRA): The extension of the Investment Tax Credit(ITC) by the IRA, with particular attention to the moderate and low-income market, is a significant driver.
Interest Rates: Interest rate fluctuations play a role in the decision-making of potential solar adopters and funders.
The Role of Concord:
Concord, leveraging its extensive experience in loan servicing, is optimally positioned to manage PPAs. By demystifying the intricate processes associated with PPAs, Concord offers homeowners a seamless and worry-free transition. Importantly, our services provide funders with the versatility to offer PPAs alongside conventional loans, thus diversifying their portfolio and maximizing potential returns.
The evolving dynamics in the solar industry, highlighted by financial models like PPAs and backed by Concord’s comprehensive PPA management, promise homeowners a clear path to solar adoption without the financial strain.
20+ years in finance, with a passion for solar, home improvement, and state energy. Deeply rooted in the evolving capital market landscape, I'm all about building trust, brand, and tech-forward solutions. Let's connect!