Anatomy of a Power Purchase Agreement
May 17, 2010 - Eric Wesoff - greentechmedia.com
“We’re building an industry from ground zero.”
You don't negotiate the terms of a mortgage when you buy a house -- it's a pretty standard document. And you sign with the bank, not the realtor, not the builder and usually not the seller.
But if you want to enter a power purchase agreement (PPA) to finance a solar system on a commercial or residential roof, there is no standard document and there is no standard entry point -- you can get the PPA through a variety of integrators or through a PPA firm. Doug Payne, the Executive Director of SolarTech, and his organization are driven to improve this situation, as well as to accelerate the entire solar installation process. He led a panel today at an Agrion event that explored the anatomy of a power purchase agreement.
A standard Doug Payne/SolarTech theme is that is all comes down to dollars per kilowatt-hour.
PPAs are relatively new in solar power, but not in the power generation space as a whole. Typically, the agreements have been drawn up for immense amounts of power and have taken years to negotiate. Solar PPAs are for smaller amounts of energy and need to close fast. SolarTech is trying to speed that process by offering a standardized PPA document, which is available at their website.
As a recap, Roper said, "The PPA industry was put on ice in 2008 to 2009, but investors have come back to the market" mostly through tax grants from the Obama Administration's American Recovery and Reinvestment Act (ARRA). "The PPA will continue to dominate medium- and large-scale systems, said Roper, adding: "PPA rate of return is in the 8 percent to 12 percent range" and "we're looking forward to the day when the PPA is a standard form."
"With the recent involvement of utilities, we think the PPA market is going to grow," said Roper, concluding, "We are in very early days in the solar industry and the solar financing industry. A lot of things need to be tried and some need to fail. We [PPA providers] are the most conservative element of an industry on the leading edge."
Other solar PPA firms include SunEdison, Recurrent Energy, Solar Power Partners and in residential -- Solar City and SunRun.
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