23 Apr

Dissecting a Net Metering Credit Purchase Agreement

A Net Metering Credit Purchase Agreement (NMA) is rather new to the solar finance industry. It is very similar to a Power Purchase Agreement (PPA) except instead of selling power, a NMA sells net metering credits.

Understanding the process of net metering is key to understanding a NMA. When a building consumes electricity from the grid the building’s electricity meter spins forward to account for the consumption. When solar is installed on site, the meter will still spin forward if consumption is greater than the solar production. However, when the solar array is producing more electricity than what is being consumed, the meter will spin backwards. The utility accounts for this, and if more solar electricity is produced than consumed during a billing period the utility will credit your next month’s bill with the excess production. This process is known as “net metering.” It is very similar to rollover minutes on your cell phone plan.

When solar is installed onsite, a building owner will enter into a PPA since it is actually buying the electricity produced directly from the array. However, some states like Massachusetts allow virtual net metering where solar electricity produced at one location can be credited to a utility customer’s bill for a completely different location. In this case, the building owner is not purchasing the actual electricity. Instead s/he is buying net metering credits equivalent in value to the electricity produced at the other location. A NMA is used in cases of virtual net metering where a building owner wants the cost savings from going solar but cannot install the solar array onsite.

The NMA is a binding contract used to outline the terms and conditions between the buyer and the seller of the net metering credits. The buyer is typically a large company that wishes to purchase the credits produced by the solar array. The seller is a solar company like Clean Footprint, which provides a way for the buyer to take advantage of solar energy. The NMA contract covers several topics that must be agreed upon by both parties:

The price is how much the buyer will pay the seller for each “credit.” It is determined based on the utility pricing. The price will either be a fixed price with an escalator or a floating rate with a specific percentage savings. With the escalator, the price will increase at a predetermined rate each year, which is less than the expected utility rate increase.  The benefit with this pricing method is that the buyer will know exactly how much it will be paying each year for solar power. With a floating rate, the cost per credit will fluctuate as the utility prices rise and fall, but the seller will guarantee a certain percentage savings each year.

Contract Duration & Termination
Both parties must agree upon the duration of the contract. Additionally, contract termination will be discussed. Generally, at the end of the contract the buyer has two options:

  1. Extend the NMA for a specified period of time
  2. Terminate the NMA at no cost

Liability is an important part of any contract. It explains the roles and responsibilities of each party and the consequences should either party no be able to fulfill their responsibilities. Additionally, all parties must comply with any local, state, or governmental laws. Under the contract, the solar company handles insurance as well as operations and maintenance once the solar array is connected to the utility grid and operational.

For more information on the similarities and differences between a PPA and a NMA click here.

If your company is considering going solar and thinks a NMA would be a good fit, please give us a call at (321) 613-4424 or visit us online at www.clean-footprint.com

Eliza Porter

Eliza Porter

Eliza is the Chief Learning Officer for Clean Footprint. As the Chief Learning Officer, she is responsible for writing and editing blogs, e-books, videos and white papers as well as other learning content created for Clean Footprint’s developer partners and clients. Eliza attended New York University in Paris, France and studied Global Liberal Studies before moving to Florida and joining the Clean Footprint team. She also studied Business and Entrepreneurship at the University of Central Florida.