Commercial Solar PPAs, Explained for Real Estate Owners
A PPA is a 20-year contract. Sign the wrong one and you're locked into below-inflation revenue for two decades. Here's the checklist.
What a PPA is
A third party (the PPA provider) owns the solar system, installs it on your roof, and sells the electricity to you or your tenants at a contracted rate. You pay $0 upfront. Term is typically 20–25 years.
The four terms that matter
- $/kWh rate. Should be 25–40% below your local utility retail rate at signing.
- Escalator. 1.5–2.9% is market. Anything above 3% erodes the tenant discount over time.
- Buyout options. Look for fair-market-value buyouts at year 7 and year 15 — this is your optionality.
- Roof warranty coordination. The PPA provider must indemnify roof damage caused by their equipment and coordinate with any active roof warranty.
Red flags
- No production guarantee.
- Escalators tied to CPI without a cap.
- Assignment clauses that let the PPA provider sell your contract to any third party without your consent.
- No end-of-term removal obligation.
Alternatives
If your entity can use the ITC (30% tax credit), owned solar with a loan often produces better long-run economics than a PPA. Non-profits, HOAs, and non-taxable structures usually stick with PPAs or use direct-pay.
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