A power purchase agreement lets a business buy solar electricity without buying the system. A third party owns and maintains the plant, and the site pays for the units it uses. The model can cut diesel spend with no capital outlay, but the contract terms decide whether the saving is real.
Quick Answer
In a solar PPA, a third party owns the plant and the site buys the power.
Tariffs are usually a discount to the current grid or diesel cost.
Terms typically run 10 to 25 years with a price escalation clause.
Check the performance guarantee and the shortfall remedy.
Confirm what happens at exit, relocation or sale of the business.
What is power purchase agreement?
A power purchase agreement is a long-term contract in which a producer sells electricity from a solar plant to a site at an agreed tariff.
It means the site buys clean power without owning the panels, inverter or battery.
power purchase agreement in practice
Common commercial solar models compared:
| Model | Upfront cost | Who owns the plant |
|---|---|---|
| Cash purchase | Full | The business |
| Bank loan | Deposit plus repayments | The business |
| Solar lease | Low or none | The financier |
| Power purchase agreement | None | The producer |
| Energy service contract | None | The contractor |
| Hybrid PPA with diesel | None | The producer |
What does a commercial solar PPA cost in Nigeria?
A commercial solar PPA tariff in Nigeria is often 15 to 30 percent below diesel generation cost.
A 100 kWp rooftop plant costs about 60,000,000 to 100,000,000 naira to build.
Legal and technical due diligence costs 2,000,000 to 6,000,000 naira.
Metering and monitoring equipment adds 1,500,000 to 4,000,000 naira.
A typical contract term is 10 to 25 years.
Annual tariff escalation is often 3 to 5 percent.
How is power purchase agreement carried out?
- Measure the site load and the diesel or grid cost it replaces.
- Size the solar plant and model the annual yield.
- Request proposals from at least three developers.
- Compare tariff, escalation, term and performance guarantee.
- Negotiate exit, relocation and change-of-control clauses.
- Commission the plant and start monthly meter reconciliation.
Sources
IEC 61724 photovoltaic system performance monitoring, Solar developer contract standards, Nigerian Electricity Regulatory Commission guidance, Commercial law and contract practice
How the model works
The developer funds, builds and owns the solar plant on the customer's roof or land. The customer buys the output.
A meter records the units delivered. The customer pays the agreed tariff for those units.
The developer keeps the tax benefits, the equipment and the maintenance obligation. The customer keeps the savings.
Tariff structures
A fixed tariff is simple but exposes the customer to market changes. An indexed tariff moves with inflation or diesel price.
A discount-to-diesel tariff is common in Nigeria. It tracks the cost the customer would otherwise pay.
Read the escalation clause carefully. A small annual increase compounds into a large number over 20 years.
Performance guarantees
The developer should guarantee a minimum annual yield. If the plant underperforms, the customer pays less.
Check how the yield is measured, which meter is used and what counts as an excused outage.
A guarantee without a remedy is marketing. The shortfall credit is the clause that matters.
Term, exit and relocation
Long terms lower the tariff but reduce flexibility. Match the term to the lease or the business plan.
Agree what happens if the business moves, sells or closes. Removal and restoration costs should be clear.
Check the change-of-control clause. A new owner should not inherit a contract it cannot use.
Technical due diligence
Review the roof structure, shading, cable routes and inverter location. A cheap design costs more over 20 years.
Check the equipment warranties and the developer's maintenance plan. Tier-one panels and a reputable inverter matter.
Confirm grid and diesel integration. The solar plant must not back-feed the grid or fight the generator.
Metering and reporting
Use a calibrated meter and agree the reading procedure. Disputes over units are common and avoidable.
Ask for monthly performance reports with yield, availability and fault history.
Reconcile the invoice against the meter every month. A PPA is a financial product as much as an energy one.
Related guides from this series
- Solar Offset Energy Bill in Nigeria
- Energy Performance Contracting in Nigeria
- Solar Plus Storage for Diesel Cost Reduction in Nigeria
About the author
Illuminate Engineering Limited designs and delivers commercial solar and hybrid power systems across Nigeria.
Frequently Asked Questions
Is a solar PPA cheaper than diesel in Nigeria?
Usually yes. Tariffs are often 15 to 30 percent below diesel generation cost, depending on site and term.
Who maintains the solar plant in a PPA?
The developer owns and maintains it. The customer should still check the maintenance obligations in the contract.
What happens if the solar plant underperforms?
A performance guarantee should provide a credit or tariff reduction. Check the measurement method and remedy.
Can I end a PPA early?
Usually with a termination payment. Negotiate the exit formula before signing, not after.
Conclusion
A solar PPA can remove the capital barrier to clean power. The engineering is mature; the contract is where the risk sits.
Measure the load, compare the tariff to your real diesel cost and negotiate the guarantees. Then the saving is bankable.