Power Purchase Agreement FAQs:
What is a Solar PPA?
A Solar Power Purchase Agreement (PPA) is an innovative financial structure which eliminates the primary barrier to nonprofits, schools and municipalities going solar: access to upfront capital. Instead of requiring a capital investment, ReVision Energy pairs tax-exempt entities with mission motivated solar investors who can take full advantage of tax incentives to lower the cost of solar. The investor partner pays ReVision to install and maintain the array at the host’s location and sells 100% of the solar generation to the host at below-market rates for a specified term up to 20 years.
What are the benefits of a PPA?
Although nonprofits, schools, and municipalities are now eligible for solar tax credits under the Inflation Reduction Act of 2022, there are still many benefits to PPA financing:
• Zero upfront cost to install and use solar onsite
• Predictable cost of electricity over 25+ years
• No need to deal with complex design and permitting
• No ongoing operations/maintenance responsibilities
• Lower electricity rates produced from clean, renewable energy
Who finances ReVision’s PPAs?
Since ReVision first brought solar PPAs to northern New England in 2010, we have engaged dozens of local, mission-aligned investors to finance over 200 PPA projects for nonprofits, schools, and municipalities. Our equity investors consist of families, businesses, retired individuals, and professional investors. They are joined by lender investors including the NH Community Loan Fund, Coastal Enterprises Institute and other mission-driven institutions. Although there are multiple players involved, ReVision serves as the host’s sole contact throughout the process and is fully responsible for system design, engineering, procurement, construction, and ongoing operations/ maintenance on behalf of our investor partners. Once the project is complete, we introduce the host to their investor.
How long is a standard PPA term?
PPA contracts are for 6-20 years and include the option of a flexible discounted early buyout option after 5 years, by mutual agreement of the host and investor. The host also has the option to buy the array early in order to own its power and maximize savings over the 40-year system life.
How soon can we own our solar array?
Beginning in year six after tax incentives have been applied, the host has the option to purchase the solar project from the owner at Fair Market Value (FMV). The future buyout cannot be set at a fixed price in the PPA contract under IRS rules and is set at the greater of FMV and a fixed pricing schedule. The annual buyout schedule calculates FMV according to the industry standard formula to give the host and investor predictability for planning purposes. Buying the array is always at the host’s discretion.
What is the cost of an early buyout?
Fair market value (FMV) is the price that property would sell for on the open market as agreed to between a willing and informed buyer and seller. All factors affecting value are relevant and must be considered in FMV calculations, including the cost or selling price of the asset, sales of comparable assets, replacement cost, and opinions of experts. For solar, investors and hosts use the income method for determining FMV of a solar project, meaning that FMV is estimated as a calculation of projected future revenue streams expected from the solar project, as shown in the PPA buyout schedule. For more information, see IRS Publication 5612 or www.seia.org/research-resources/valuation-solar-generation-assets.
Are we responsible for maintenance?
During the term of the PPA, ReVision’s investor partner is responsible for all operations and maintenance (O&M), which it contracts with ReVision to complete. Once the PPA host obtains ownership of the solar project, it becomes responsible for any future O&M. For ground-mounted solar arrays, the host typically continues basic vegetation management to avoid shading the array. Solar arrays contain no moving parts and require minimal maintenance throughout their 25-year warranty period and 40-year commercial lifespan. The cost of an optional O&M contract to maximize long-term performance and financial benefits is included in ReVision’s PPA proposal and cash-flow model.
How does billing work?
The investor partner will monitor solar production and bill the host for the kWh generated on a quarterly basis (with the option of monthly or annual billing). The host purchases all solar generation at the “Point of Delivery” where the solar generation enters the host’s existing electrical service. Depending on the host’s real-time electricity needs, solar generation will either be used instantly onsite or delivered to the grid via the existing utility interconnection and credited to the host via NEB/net metering. The host will continue receiving monthly statements from the utility showing electricity purchases and solar generation credits.
How does net metering work?
By signing the PPA, the host agrees to purchase 100% of solar generation at the point where the solar equipment connects to the host’s electrical service. As the interconnecting customer, the host holds the NEB/net metering contract with the utility. Electricity generated by the solar project and purchased by the host will first go to serve onsite load. Should solar generation exceed on-site load, excess generation will be net metered by the utility and credited to the host account under the applicable state rules. Net metering varies by state and utility territory; PPA proposals contain conservative estimates of NEB/net metering benefits according to host location and situation.
Who owns the RECs in a PPA?
Renewable Energy Credits (RECs) automatically accrue to the owner of the solar project. Although the investor partner owns the RECs during the PPA term, the host may negotiate the purchase of RECs generated by the solar project from the investor. If the host chooses to exercise its buyout option, all rights to RECs transfer to the host along with full ownership rights and equipment warranties.
Do we need special insurance coverage?
During the term of the PPA, the investor partner is responsible for property and general liability (GL insurance). The PPA host will be asked to add the solar project as a rider to its existing GL coverage, typically at no additional cost to the PPA host. If and when the host chooses to buy the array, it will be responsible for property insurance.
What happens if our solar goes offline?
The investor partner and ReVision monitor system generation online and promptly identify if the system experiences any downtime or performance issues. If an issue arises, ReVision’s Service Division conducts the necessary service to return the system to full operation as quickly as possible. Since the investor partner can only bill the host for solar power delivered, it has a strong incentive to maintain the system in peak condition. The host maintains its grid connection to ensure continuous power.
What if the array under produces?
ReVision’s production estimates are engineered using industry leading solar generation estimating tools and our in- house Engineering team has mapped data from operating systems around the region to arrive at highly accurate projections of future generation. There will be yearly variation within the range of +/-10% based on weather. Because the PPA is an agreement that the host purchase all power generated by the solar project, under production in any year will only result in the host purchasing less power from the solar project and more power from the utility, generally offset by overproduction in a subsequent year, and over the life of the PPA contract, there will be negligible economic impact. There is an added cost if the host requires a performance guarantee, available at the industry standard of 90% of estimated production. Because solar arrays have minimal O&M, the likelihood of significant downtime is extremely low and performance guarantees are not typically worth paying for in solar PPA projects.
What happens at the end of the PPA?
If, at the end of the contract term, the host and investor choose not to renew the PPA, the host may choose to purchase the solar array at FMV or have the investor remove it from their property at the investor’s expense.
