What is a Solar PPA?
The solar power purchase agreement (Solar PPA) more specifically, a behind-the-meter solar power purchase agreement has been around for decades. It is a contract between two parties where one party generates electricity and sells it to the other looking to purchase it.
However, unlike traditional retail energy sellers, Solar PPA sellers own the project that generates the electricity and sell that generated electricity to the buyer. For example, the only obligation of the buyer is possessing the necessary space required for the fitting of a solar system. The seller takes on the other responsibilities associated, such as the cost of installation and maintenance of the solar panels, and thus they assume the risk of the performance.
This business model is extremely beneficial to both parties as customer benefits include minimal to no upfront costs, while they attain reliable and reduced energy costs. The seller is also incentivised to maintain the solar system performance at an optimal level as they are able to obtain the renewable energy credits. The excess energy generated through the solar system goes into the grid and the buyer gets the benefits in the form of payment (known as a feed-in tariff) from their retailer.
How did the Solar PPA come to be?
In the 1970’s the United States was confronted with a severe energy crisis. The oil embargo presented towards them left the nation with skyrocketing oil prices, and a dependence on foreign oil and diminishing natural gas resources. This introduced the need for an alternative source of energy through the contributions of renewable energy as well as displaying the prominence of how quickly non-renewable energy was diminishing.
During this time the US congress advocated for an alternative energy development and passed the Public Utility Regulatory Policies Act in 1978 (PURPA). This Act removed economic and regulatory hindrances to alternative energy development in an attempt to advance energy independence and preserve natural gasses. PURPA enforced the notion that utilities were to buy electricity from independent companies that were able to produce electricity for less than the cost of that utility to generate that power. It has been said that “PURPA has been the most effective single measure in promoting renewable energy.”
This Act charted two classes of qualifying facilities: 1. Co-generators including thermal and electric power, and 2. Small power producers or behind-the-meter energy producers for alternative energy sources such as renewable energy. Qualifying facilities were permitted to sell power wholesale. PURPA exempted these qualifying facilities from being classified as utilities in the Federal Power Act, the Public Utility Holding Company Act of 1935 and State Utility Regulation.
This also created an obligation for utilities to purchase alternative energy and capacity at their avoided cost. Utilities were required by law to enter into PURPA corporate PPAs making it necessary to buy independent power, the monopsony buyers were the primary off-takers (purchaser of renewable energy in a solar development project) from these qualifying facilities, under the Acts obligation to purchase.
However, some states allowed retail access or sale, and thus were able to sell on site from these qualifying facilities if they were generating electricity. For example, California was able to sell to two contiguous states, but this was not deemed a retail sale. The PPAs were generally controversial, not only in the terms and conditions of the PPA, but the pricing as well. The qualifying facilities of the utilities were paid the same amount of how much the utility would have expended to produce and solicit electricity from their traditional sources.
What we can Learn
These developments helped to advance the United States’ independence from foreign imports. The qualifying facilities elevated overall system dependability, as well as diminishing a utility’s need for costly transmission capacity in distributed generation and a reserve margin that was particularly high. The facilities deployed the best available control technologies which reinforced energy efficiency and aided to reduce emissions from traditional energy retailers.
PURPA drove legislators and state public Service Commissions to enforce Renewable Portfolio Standards and made mandatory purchases of renewables. PPA’s and PURPA have a long history of success in the United States, and Australia stands to benefit greatly from adopting similar systems that have previously been put in place to drive change and support renewable development and lead not only our nation but the world into a more sustainable age.
These are in line with Energy Terrain’s goals for sustainability, and such align with the business model of operating with solar Power Purchase Agreements.
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