With rising costs, many households and businesses are exploring ways to reduce consumption and expenses. Energy can make up a large portion of your bills. Accordingly, it is no surprise that many individuals seek methods to rely less on traditional grid suppliers and instead strive towards self-sufficiency. As a result, solar panels are becoming an increasingly popular option to offset electricity charges, but their high upfront costs can put them out of reach. That is where a Power Purchase Agreement can come in handy. This article explores what a Power Purchase Agreement is, why you might enter into one, and what key terms you should expect to see in them.
What is a Power Purchase Agreement?
A Power Purchase Agreement is a contract between the owner or occupier of the property and a solar panel supplier, under which the supplier will install and maintain solar panels on the property. In return, the owner or occupier agrees to purchase electricity generated by the solar panels at a predetermined price. Separately, the supplier will contract with the grid supplier to sell back electricity generated by the solar panels, reducing the owner or occupier’s overall electricity bill.
What are the Benefits of a Power Purchase Agreement?
A Power Purchase Agreement allows you to access the benefits of a solar panel system without the upfront costs associated with purchasing or leasing a system. In addition, the supplier is responsible for ongoing maintenance and repairs, which means any repair costs will not typically be your responsibility to pay.
The Power Purchase Agreement predetermines the price at which you purchase the electricity generated by the solar panel system. This means you have predictable energy costs, which is great for budgeting.
However, you should weigh up the benefits against the long-term commitment of a Power Purchase Agreement. These agreements can have a minimum length of 10 years or more, as that is often how the supplier recoups their upfront installation costs over time. The installation of a solar panel system may also restrict your ability to sell or lease out your property depending on the terms of your agreement, so it is worth seeking legal advice before signing.
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What are the Key Terms of a Power Purchase Agreement?
A Power Purchase Agreement contains several key terms, including:
- details of the fees to be paid by the owner or occupier, such as installation fees, electricity consumption charges, and even a purchase price for the solar panel system at the end of the contract;
- how electricity consumption will be measured, such as through electronic metering or other methods;
- the length of the contract, and whether the owner or occupier has any early exit or buy-out options;
- where the solar panel system is to be installed, and who is responsible for its installation and maintenance (typically the supplier);
- if the person requesting installation is not the property owner, obligations on that person to obtain the property owner’s written consent to the installation;
- who will own the solar panel system once it has been installed (typically the supplier), and whether parties can register any security interests over it;
- who is responsible for obtaining approvals or permits to connect the solar panel system to the electricity grid network; and
- whether there are any guarantees or remedies where a solar panel system does not deliver the expected or promised results.
In addition, a Power Purchase Agreement will have several general provisions to address what happens if:
- parties do not make payments on time;
- a defect in the solar panel system appears;
- an electricity outage occurs for an extended period; or
- a dispute commences between the parties.
Key Takeaways
A Power Purchase Agreement is a great way to access the benefits of a solar panel system without the high upfront costs and to reduce your overall electricity bill. However, you should weigh up the potential financial savings against the long-term commitment of the agreement. Furthermore, depending on the agreement terms and conditions, it may restrict your ability to sell or lease your property in the future.
If you want to know more about Power Purchase Agreements or wish to have one drafted, our experienced greentech lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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