Power Purchase Agreements (PPA's)
A Power Purchase Agreement (PPA) is a long-term agreement to buy power from a company that produces electricity. A third party investor will pay for all of the cost to build, maintain and operate a solar system on a customer's site. Typical PPA's last for fifteen to twenty years, and at the end of the agreement the building owner can elect to purchase the system at fair market value or the PPA can be renewed.
PPA's are often signed for large public facilities, building owners who can not take advantage of the tax credits for a solar system, or building owners who want to focus their financial resources on their core business. A PPA will allow these customers to hedge their cost of energy while enhancing their image as a green facility.
|
TYPICAL PPA SAVINGS SCENARIO
|
|
Description
|
Loan
|
Lease
|
PPA
|
|
System Owner:
|
Customer
|
Lessor
|
Investor
|
|
Term:
|
<10 years
|
10 years
|
20 years
|
|
Accounting Treatment:
|
On balance sheet
|
Normally off balance sheet
|
Always off balance sheet
|
|
Construction Financing:
|
N/A
|
Yes
|
Yes
|
|
Credit Consideration:
|
Most customers
|
Most solar customers
|
Longer term means better credits
|
|
Pricing:
|
Fixed/floating for term
|
Fixed payment for term
|
Fixed rate based upon per kWh produced
|
|
Payment Inflation Rates:
|
N/A
|
5%
|
5%
|
|
Payment:
|
Monthly
|
Monthly
|
Monthly
|
|
Federal Energy Tax Credit:
|
Customer's account
|
Lessor's account
|
Investor's account
|
|
Federal Depreciation:
|
Customer's account
|
Lessor's account
|
Investor's account
|
|
State Depreciation:
|
Customer's account
|
Lessor's account
|
Investor's account
|
|
State Incentives:
|
Customer's account
|
Lessor's account
|
Investor's account
|
|
Renewable Energy Credit:
|
Customer's account
|
Customer's account
|
Investor's account
|
|
Carbon Credits:
|
Customer's account
|
Customer's account
|
Investor's account
|
|
Expenses:
|
Customer's account
|
Customer's account
|
Investor's account
|
|
Insurance Liability:
|
Customer's account
|
Customer's account
|
Customer's account
|
|
Insurance Casualty:
|
Customer's account
|
Customer's account
|
Customer's account
|
|
Operation & Maintenance:
|
Customer's account
|
Customer's account
|
Investor's account
|
|
Purchase Option:
|
N/A
|
Fixed 20% of the purchase price
|
Fair market value
|
|
Renewal Option:
|
N/A
|
Fixed
|
Fair market value
|
|
Return Option:
|
N/A
|
Not available
|
As per the PPA
|
|
Garland Energy Systems, Inc.
The Garland Company, Inc.
