Financing Sustainability Projects on Campus
Power Purchase Agreements
Power Purchasing Agreements (PPA) are primarily used for financing and implementing onsite renewable energy installations. A PPA is a contract between an independent power producer (provider) and private entity (buyer). The provider owns, operates and maintains a renewable energy system sited on buyer property for the life of the contract. The buyer essentially rents out a portion of their property, for example roof space, to the provider and agrees to purchase electricity generated by the system for an agreed upon price (often escalating) and time period. Where legal, a PPA can be established for almost any type of renewable electricity generation technology. Most commonly, PPAs have been used for rooftop solar photovoltaic arrays, although PPAs have also been utilized for windmill installations.
Buyers typically are property owners looking to reduce their energy costs over the long term. By entering into a PPA the buyer has a known price of electricity from a renewable source for the duration of the contract. At the end of the contract, the buyer owns a renewable system, and receives free electricity for the remaining lifetime of the system (excluding maintenance costs). In many cases buyers also are third parties such as utilities which need to supplement their load for reasons such as a requirement to purchase electricity from renewable sources, or private companies which need to meet a renewable portfolio standard (RPS), or other incentives to purchase electricity from renewable sources. Buyers always have the option of establishing a new and independent PPA to sell the electricity to a third party, such as a utility (selling the power back to the grid).
• Costs to the buyer are clearly established at the outset and fixed for the duration of the contract
• No up-front cost to the buyer to install the renewables, as the PPA provider provides the necessary capital
• Provider assumes responsibility for equipment operations and maintenance costs
• Expected volume of electricity produced is stipulated, with various, predetermined, results for generation above and below agreed upon levels
• Often is some combination of tax credits, rebates and carbon credits available to both parties, which can improve the investment profile of the renewable installation
• Buyer does not obtain the benefits of ownership of the asset (e.g. depreciation, tax)
• Arrangement results in a long-term lease on the property
• Contract terms can be long
• All-in cost likely more expensive than typical bank financing