Solar PPA terms: length, price and exit
A PPA is a long contract, often longer than anything else a business signs. Most of it is straightforward. Three parts deserve proper attention before anyone signs anything.
How long does a solar PPA last?
UK solar Power Purchase Agreements commonly run somewhere between 10 and 25 years. The length is not arbitrary: the investor is recovering the cost of the system through the electricity you buy, so a longer term generally supports a lower unit rate, and a shorter one a higher rate.
That trade-off is worth understanding before you treat a long term as automatically worse. A twenty-year agreement at a low rate may serve you better than a ten-year agreement at a higher one, particularly if you expect to occupy the building either way.
The right question is not "how long is the term" in isolation, but "how long do we expect to be in this building, and what happens if that changes". Which leads to the second thing worth reading closely.
What happens if you leave, sell or the site changes hands
Agreements deal with this, generally by the arrangement transferring with the site to the incoming occupier or owner. The system is physically attached to that roof, so it does not follow you elsewhere.
What varies between contracts is the detail: what obligations sit with you if a buyer will not take the agreement on, whether there is a buy-out, and how it is calculated. These are the clauses we would tell any business to read properly, and to have a solicitor look at if the numbers are material. That advice holds whether or not we are involved in the introduction.
How the price changes over the term
Most agreements include an annual adjustment to the unit rate rather than a flat price for the whole period. Over ten to twenty-five years, the basis of that adjustment matters considerably, and it is the single clause most often skimmed.
What to establish: what the adjustment is linked to, whether it is capped, and what the rate looks like in later years of the term rather than only at the start. A rate that looks attractive in year one and unattractive in year fifteen is a different proposition from one that stays competitive throughout.
The funding partner's published position is that the price is fixed and increases annually at the rate of the Retail Price Index. That is their stated standard rather than a quotation for your project, so confirm the basis and any cap in the agreement you are actually offered.
What happens at the end of the agreement
Rights and title to the system pass to you. You own it outright, and the electricity it continues to generate from that point costs you nothing beyond maintaining it.
Commercial panels typically carry performance warranties running to twenty-five years or more, and continue producing beyond that at gradually reducing output. So a system handed over at the end of a long PPA generally has useful life left in it, though how much depends on the equipment and how it has been maintained.
What is covered during the term
Under a funded agreement, monitoring, maintenance, cleaning, repair and insurance sit with the system's owner rather than with you. That is a meaningful part of the value and is easy to overlook when comparing a PPA rate against a simple purchase calculation.
Roof works are the other thing worth confirming. Where remedial work is needed to take the system, it can usually be built into the agreement rather than falling to you, but confirm that for your own project rather than assuming it.
The three things to check before signing
- The length of the term, against how long you realistically expect to occupy the building.
- The basis for annual price adjustment, whether it is capped, and what the rate looks like in the later years.
- The exit and transfer provisions, and any buy-out and how it is calculated.
None of these are unusual or hidden. They are simply the parts of a long contract that determine whether it serves you in year fifteen as well as it does in year one.
Related reading
- What is a solar Power Purchase Agreement?
- Solar PPA vs buying outright
- What does a solar PPA cost?
- Commercial solar funding options
- Common questions about fully funded commercial solar
The first step
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Common questions
How long does a solar PPA last?
UK solar PPAs commonly run between 10 and 25 years. A longer term generally supports a lower unit rate, since the investor recovers the system cost over more years. The right length depends on how long you expect to occupy the building.
What happens at the end of a solar PPA?
Rights and title to the system pass to you. You own it outright and the electricity it carries on generating costs you nothing. Commercial panels typically have useful life remaining at that point.
Does the price stay the same for the whole term?
Most agreements include an annual adjustment rather than a flat rate. The basis for that adjustment, and whether it is capped, is one of the clauses worth reading closely before signing.
What if we sell the building during the term?
Agreements generally transfer with the site to the new owner or occupier, since the system is attached to that roof. The specifics vary by contract, which is exactly why the transfer and exit provisions are worth reading properly.