What happens to a PPA if the property is sold mid-contract?

PPA contracts run with the property and must be addressed in real estate transactions. Options typically include: (1) PPA assumption — the new owner assumes all obligations and benefits of the existing PPA, which requires lender/developer consent and creditworthiness review; (2) PPA buyout — the seller pays a predetermined or fair market value buyout price to terminate the PPA before closing; (3) system removal — rarely practical given roof penetrations. Most residential PPAs include assignment provisions that facilitate new owner assumption. Commercial PPAs with institutional buyers generally have more complex assignment requirements. Disclosing the PPA early in the sales process (ideally at listing) avoids deal complications.

How is the PPA rate set, and what makes a PPA financially favorable?

PPA rates are set through financial modeling to provide the developer an adequate return on investment (typically 8–12% unlevered IRR) while undercutting the local utility retail rate to create customer savings. The key inputs are: project installed cost ($/W), applicable ITC and depreciation benefits, operations and maintenance costs over the contract term, local utility retail rate, and expected contract term. A PPA is financially favorable to the off-taker when the PPA rate (including any escalator) is consistently below the utility rate over the contract term. Off-takers should model scenarios where utility rates rise slower than expected — if utility rates stay flat or fall (due to lower energy prices or distributed generation saturation), PPA savings may erode.

What is virtual net metering and how does it differ from standard net metering?

Standard net metering credits a customer for excess solar electricity exported to the grid from their own on-site system, applying credits to the same account that generated them. Virtual net metering (VNM) allows credits generated by an off-site shared solar project to be applied to multiple subscriber accounts, each at a different location, on the same utility circuit or territory. Credits are allocated proportionally to each subscriber's share of production and appear as bill reductions on their utility bills. VNM requires utility billing system integration and clear regulatory rules governing credit rates, frequency, and banking. Not all utilities or states have VNM-enabling tariffs, which is why community solar is not available everywhere.

What is FERC Order 2222 and how does it affect community solar?

FERC Order 2222 (September 2020) requires all regional transmission organizations (RTOs) and independent system operators (ISOs) to allow aggregations of distributed energy resources (DERs) — including solar, storage, EVs, and demand response — to participate in wholesale electricity markets as market participants. Previously, individual small DERs could not directly participate in capacity, energy, or ancillary services markets due to minimum size requirements. Order 2222 enables community solar projects and other DER aggregations to earn wholesale market revenue in addition to retail bill credits, potentially improving project economics and enabling new business models. Full implementation is ongoing across RTOs through 2025–2026.

Engineering·8 min read·August 15, 2025

📋 Power Purchase Agreements and Community Solar Programs: Structure, Benefits, and Risks

A practitioner's guide to solar Power Purchase Agreements (PPAs) and community solar programs — covering contract structure, pricing mechanisms, virtual net metering, subscriber management, and regulatory considerations for project developers and off-takers.

📖Renewable Energy Design Reference (Full Access)

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What Is a Power Purchase Agreement (PPA)?

A Power Purchase Agreement (PPA) is a long-term contract between a solar project owner (seller) and an electricity consumer (off-taker/buyer) in which the buyer agrees to purchase the electricity generated by the solar system at a fixed or escalating price per kWh over a defined contract term. PPAs transfer the benefits of solar generation to customers who cannot or prefer not to own a system outright — typically because they lack upfront capital, do not own their building, have unsuitable rooftops, or cannot monetize tax incentives directly.

Topics covered

power purchase agreementPPAcommunity solarvirtual net meteringVNMsolar off-takerlevelized cost of energyLCOEsolar contractPPA escalatorcommunity solar subscriptionshared solarFERC Order 2222avoided cost