to be eligible for a ppa, a project must be located in a state or jurisdiction where third-party ownership of energy generation equipment is allowed. a price escalator) to account for gradual decreases in system operational efficiency, operating and maintenance costs, and increases in the retail rate of electricity. the developer will typically create a special purpose entity (spe) for each project that serves as the legal owner of the energy system.
under an offsite ppa, the customer and the renewable energy project do not need to be located in the same region. the customer and project owner agree on a fixed rate for the cost of the generated power, which is also referred to as a strike price. under a ppa, a third party installs, owns, and maintains the energy system, allowing the customer to avoid the risks and complexity of equipment ownership.
a ppa is the principal agreement that defines the revenue and credit quality of a generating project and is thus a key instrument of project finance. ppas are typically subject to regulation at the state and federal level to varying degrees depending on the nature of the ppa and the extent to which the sale of electricity is regulated where the project is sited. one of the key benefits of the ppa is that by clearly defining the output of the generating assets (such as a solar electric system) and the credit of its associated revenue streams, a ppa can be used by the ppa provider to raise non-recourse financing[7] from a bank[8] or other financing counterparty.
[10] maintenance and operation of a generation project is the responsibility of the seller. typically, the seller is also responsible for installing and maintaining a meter to determine the quantity of output that will be sold. [10] this system is intended to provide an incentive for the seller to properly estimate the amount of energy that will be produced in a given period of time. the legal agreements between the statewide power sectors(seller) and the trader(buyer/who buys large quantity of power) will be treated as the ppa in power sector.
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