93

Chapter 5

The Power Purchase

Agreement (PC for Solar)

Ryan Park

INTRODUCTION

The installation of a solar electricity project is a great way to green
your business, and the financial return can be very attractive if your busi-
ness is positioned in a state or utility district offering rebates and/or tax
credits for solar installations. Due to the fact that solar electricity panels
will last many decades and have a significant amount of embedded ener-
gy, the upfront cost of a solar project can be significant. At this time there
are several ways to proceed with a solar electricity project: cash purchase,
project finance, capital or operational lease, or power purchase agreement
(PPA). Due to the many benefits of a PPA, over 60 percent of all com-
mercial solar projects are financed using this structure. In this chapter we
will explain the power purchase agreement and its advantages over other
forms of financing. Then we will proceed into design criteria to maximize
your return on investment if pursuing a PPA.
The primary benefit for using a PPA is to get a solar system on your
roof with zero upfront costs, while also having a known price for energy
for 20 years. (The energy produced from the solar system reduces risk
from energy supply price spikes.)

WHAT IS A POWER PURCHASE AGREEMENT (PPA)?

A power purchase agreement is a long-term agreement to buy power
from a company that produces electricity. A third-party financier will pro-
vide the capital to build, operate, and maintain a solar electricity installa-
tion for 15 to 20 years. The host customer is only responsible for purchasing
the electricity produced by the solar system. It is the responsibility of the