How Does a Commercial Solar PPA Work

  • October 7, 2019

The time has come for your business to transition to solar, but you might be asking yourself how a commercial solar PPA works? Do you finance your solar project through a bank or a third party lender? Don’t worry, we’ve got the answers below.

What is a Power Purchasing Agreement (PPA)?

Your business can enjoy going solar with zero capital investment by structuring a solar project through a third party lender, which is also known as a Power Purchase Agreement (PPA). A PPA is just one of many solar financing options. Instead of your business purchasing the solar panels and system outright, you can buy the energy that is generated from the system installed at your facility, which is primarily owned and financed by a separate financer or investor. At the end of your agreement, you will have the power to purchase the system from the financer or you can draft a new agreement and continue operating under a financing agreement. It is important to note that there are a few things that come with purchasing your system from your financer after the terms of your agreement come to an end. You will have to find a solar professional who can maintain and troubleshoot your system when issues arise.

Advantages of a Commercial Solar PPA

There are many benefits of choosing a commercial solar PPA when your organization decides to switch to renewable energy for its manufacturing operations. Here are just a few:

  • Reduce energy costs immediately. Since you have transitioned to your own energy system, you will not have to deal with rate increases from traditional energy providers.
  • Attract new consumers to your business. As more people are willing to support business who are working towards a greener future, you have the opportunity to be an industry leader and start a revolution towards renewable energy initiatives in your community.
  • Avoid an initial capital investment. Since the system is financed by a third party financer, there is zero initial investment from you.
  • Predict energy costs. Your PPA will deliver a predictable schedule of energy rates over the term of the contract, which is much different than utility rates that fluctuate over time.
  • Face a future buyout price that is significantly lower than the initial cost. Since you have the option to buy your solar system after your agreement has ended, the cost of the system will come at a steep discount.
  • Receive a federal tax credit equal for newly installed systems. These can cover up to 30 percent of the cost of the solar system. States also have their own separate tax credit incentives you can capitalize on.

Disadvantages of a Commercial Solar PPA

Unfortunately, there are a few solar PPA problems that could turn you away from this idea. Here are a few:

  • Long terms of agreement. Sometimes they span 15-20 years depending on the third party you finance through. However, a lease might make sense for your situation. A solar operating lease typically requires you to sign for 7-10 years. This could be great if you are unsure if you are going to move or you want to own your system after a shorter period of time.
  • Limited control over your equipment. Since you do not own the solar equipment, you have to rely on someone else to maintain and repair it. This could become inconvenient when you need this done quickly and efficiently.


When companies are looking to transition to solar for renewable energy, a commercial solar PPA is one of several options available. Now that you have a better understanding of how PPAs work, it is up to you to decide if this is the right move for your business. For more information about how your company can benefit from a commercial solar PPA, contact AVANA Capital today. Here at AVANA Capital, we have been working with businesses just like yours to finance solar projects for more than five years. Our main goal is to provide you with a creative lending solution for your next clean energy project that stays within your budget and solves your unique problems. Our renewable energy initiatives not only create value for our company, our investors, our borrowers and the overall economy, but also creates value for future generations by providing them with clean renewable energy.