17 Dec

Power Purchase Agreements vs. Net Metering Credit Purchase Agreements in Massachusetts

Under a Power Purchase Agreement (PPA), the customer purchases solar generated ELECTRICITY from an independent power producer (IPP). The IPP leases the customer’s roof and installs a solar array on it. Then, the IPP sells the electricity generated by the array to the customer at a discounted rate thus saving him/her money.

A Net Metering Credit Purchase Agreement (NMA) allows the customer to purchase NET METERING CREDITS from an independent power producer. Net Metering Credits are produced by a solar array that is located at a different site than where the customer is located. When the solar array produces electricity offsite, the utility credits the customer’s meter for that production by a certain number of Net Metering Credits. The customer’s utility bill is reduced by the number of Net Metering Credits, which correspond to the number of kilowatt hours (kWhs) produced by the array offsite. The customer, in turn, pays the independent power producer for each Net Metering Credit at a rate lower than the value of the credit, thus saving the customer money.

Both financing forms are purchase agreements, meaning that the customer agrees to purchase electricity (under a PPA) or net metering credits (under a NMA) at a specified rate over a specified amount of time. The main difference between the two is how the contracts are priced. Typically Power Purchase Agreements are priced at a starting rate denominated in cents per kWh ($0.105/kWh, for example) with an annual escalator that is less than the historical electricity inflation rate for the state or utility provider. In Massachusetts, utility rates have increased by 4.3% annually for the last 10 years according to the Energy Information Administration. A Power Purchase Agreement provides immediate cost savings and stabilized electricity prices for the length of the PPA. Typically, a Power Purchase Agreement can also provide a higher amount of savings year one compared to a NMA. Pricing in a NMA, on the other hand, typically fluctuates depending on the value of the Net Metering Credit. Naturally, there is a price floor and a guaranteed percent savings. For example, a NMA may be priced with a $0.105/kWh price floor or a 5% savings to the value of the Net Metering Credit. Since the value of the Net Metering Credit fluctuates with rising utility prices, the NMA payment for the Net Metering Credit will also increase.

The fluctuation of the Net Metering Credit makes the NMA price unstable and is of higher risk to the client. With a Power Purchase Agreement, the payment remains constant so the client will know at all times how much he/she is both spending on the PPA and saving on his/her electricity bill. However, NMAs are best used on projects that require the solar array to be installed offsite. If you are considering installing solar offsite and using a NMA, make sure you understand the pricing schedule and how your solar bill is calculated. Overall, installing solar onsite and using a Power Purchase Agreement is a much more secure financing option and is accordingly used much more than a Net Metering Credit Purchase Agreement.

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.