Business power purchase agreements: a plain guide
A power purchase agreement is a long-term contract in which a business buys electricity from a renewable project, either on its own site or elsewhere, at an agreed price or formula. It can cut upfront costs, but the contract length, price escalator and exit terms need careful reading.
What is a power purchase agreement for a business?
Under a PPA, a developer or owner builds and operates a generating system such as solar panels, and the business agrees to buy the output for a set number of years. The business does not own the equipment in the usual on-site model. It pays for the electricity produced, and the owner handles installation and maintenance. This is why PPAs appeal to companies that want clean power without a capital outlay.
Rules for PPAs depend on provincial electricity regulation. In some provinces an on-site PPA is allowed and common, in others the structure is restricted or uses a lease instead. Ask your utility and your province's energy ministry what applies to you. For the household-scale version of the choice, see solar lease versus PPA.
What is the difference between on-site and off-site PPAs?
An on-site PPA places the system on your roof, carport or land, so you use the power directly. An off-site PPA buys output from a project elsewhere, and in regulated markets the arrangement may be financial rather than physical, which is sometimes called a virtual PPA. Off-site deals can suit larger buyers with high consumption and no suitable roof, but they are more complex and more often available in markets where electricity is deregulated, such as Alberta. Smaller businesses usually look at on-site arrangements first. The ownership route is covered in solar panel cost in Canada for comparison.
What contract terms matter most?
Read the following points line by line, and have a lawyer review them:
- Term. Many agreements run for decades, longer than most leases or your plans for the building.
- Price and escalator. A rate that rises every year can erase the savings, so compare it with your expected utility rates.
- Production guarantees. What happens if the system produces less than promised?
- Buy-out and transfer. Can you purchase the system, and does the contract move with the property if you sell?
- Maintenance, insurance and roof work. Who pays if the roof must be repaired?
Whatever you sign should be checked against the solar installer checklist.
How does a PPA compare with buying or financing?
Buying keeps the savings and the tax position, and may allow a capital cost allowance, see capital cost allowance for solar. Financing preserves ownership while spreading the cost, described in solar financing options. A PPA gives the least upfront cost and the least control, and the owner of the system, not you, usually claims any tax benefits tied to ownership. The best choice depends on your cash position, your appetite for contract risk and how long you will stay in the building. Our solar tax guide for small business explains the tax side, which your accountant should confirm.
What should you ask before you sign?
Request a model of savings under several utility price scenarios, the full contract draft, references from earlier customers, and proof of the provider's insurance and financing. Ask what happens if the provider is sold or closes. Check the utility's interconnection rules and any incentives in the Government of Canada energy pages, your provincial ministry and your local utility. If the numbers rely on a program, confirm its current terms in writing.
Quick answers
What is a PPA for a business?
It is a long-term contract to buy electricity from a renewable project, often built on your property by a third party, at an agreed price or formula.
Do I own the solar system under a PPA?
Usually not. The provider owns, operates and maintains it, and you pay for the power it produces. Many contracts offer a buy-out option, so check the terms.
Are PPAs available in every province?
No. Electricity rules are provincial, and some places limit or shape these arrangements differently. Ask your utility or provincial energy ministry what is allowed.
What is a virtual PPA?
It is a financial contract with an off-site renewable project, where the buyer does not take the physical power but receives value tied to the market price. It is mostly used by large buyers.