NewEnergyNews: BEAT THE COST OF SOLAR WITH A PPA

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    Monday, June 30, 2008

    BEAT THE COST OF SOLAR WITH A PPA

    MMA Renewable Ventures and other finance mavens have come up with a wrinkle on the Power Purchase Agreement (PPA) concept to help get consumers past the single biggest obstacle to home and business solar installations, the upfront costs and financial complexities.

    Normally, a Power Purchase Agreement (PPA) is between a utility and a power producer. The utility agrees to buy power and the producer promises to sell it at the contracted price. It gives the producer a sure market and the utility a sure source of power at a sure price.

    The new solar PPAs are a little different. An outside financier like MMA signs a deal with somebody who wants solar on their home or business. The home/business owner guarantees to buy all the system’s output at a guaranteed price for the life of the system. This puts the home/business owner in the position of the utility.

    It puts MMA, as "owner" of the solar system, in the position of the power producer. Assured it will have a consistent income from the system, MMA can arrange financing (usually through a bank that will collect interest from MMA and take advantage of the complicated tax benefits that come with the financing). With financing in place, MMA then gets the system installed (and regularly serviced) by a competent solar energy company.

    Maric Munn, director of facilities management, UCSF: MMA facilitated the installation of a solar system for UCSF. "It's very simple - we got someone else to take on the headaches, and we get the power…"

    The home/business owner gets solar energy and the associated advantages (on site generation, a reduced carbon footprint, peak demand smoothing, etc) without having to take out a loan or worry about operations.

    Complexities may arise when the home/business changes hands. SunRun, a San Francisco company doing PPAs, gives customers 3 options when selling their property: (1) Buy the rooftop solar system and take it or sell it to the next owner; (2) Assign their PPA to the next owner; (3) Pay off the PPA and own the system’s output through the term of the contract.

    NewEnergyNews has found it is usually the thought of selling the house that most often causes homeowners to reject the idea of installing a solar system. Home ownership is so fraught with uncertainties that incurring another one stymies even the most rational thinker. Turning the uncertainty to a guarantee will get more solar systems installed than all the clever, complicated contracts ever written by lawyers. Which is why NewEnergyNews likes the Berkeley city program so much.
    (See BERKELEY BREAKTHROUGH SOLAR FINANCE PLAN PASSES) In Berkeley, the city owns everybody’s system and collects the returns on the power generated through a property tax assessment until the system is paid off. When the house is sold, the arrangement simply moves to the new owner along with the property taxes.

    click to enlarge

    A cheaper way to get solar power installed
    David R. Baker, June 25, 2008 (SF Chronicle)

    WHO
    MMA Renewable Ventures (Matt Cheney, CEO); University of California at San Francisco (UCSF) (Maric Munn, director of facilities management); Open Energy (David Saltman, CEO); SunRun (Nat Kreamer, President)

    WHAT
    MMA used a Power Purchase Agreement (PPA) to facilitate the development of a a solar installation by UCSF. Open Energy is using a PPA to facilitate a solar installation for a 47-unit condominium complex.

    click to enlarge

    WHEN
    Residential PPAs are a relatively new phenomenon. California Assemblyman Mark Leno (D-San Francisco) is in the process of drafting legislation to codify rights and responsibilities.

    WHERE
    - MMA Renewable Ventures is based in San Francisco.
    - The UCSF installation was at its Mission Bay campus on Genentech Hall and a nearby parking garage.
    - Open Energy is based in Southern California.
    - The Open Energy condominium complex installation is in San Diego County.
    - SunRun is based in San Francisco.

    WHY
    - MMA arranged the UCSF installation’s financing ($2 million) through Wells Fargo Bank. A subsidiary of Chevron Corp. did the 250-kilowatt installation. Sharp made the panels.
    - Other MMA-facilitated solar installations: Fetzer Vineyards, Gap, Macy's, AC Transit.
    - Every condo owner in the San Diego installation signed a PPA with Open Energy. Solar is expected to suppy 40% to 50% of the condos’ electricity.
    - Important inclusions in PPASs: (1) Full estimate of all future costs; (2)Detailed explanation of financial terms; (30 Maintenance obligations of both the company and the homeowner.

    click to enlarge

    QUOTES
    - Matt Cheney, CEO, MMA: "A lot of (the) time, that first cost is hard to digest…UC - like everybody else - doesn't have a lot of cash lying around."
    - David Saltman, CEO, Open Energy: "We see this structure as a way of bringing solar to millions of households…"
    - Sue Kately, executive director, California Solar Energy Industries Association (CSEIA): "Since each company has its own (business) model, it's really important for the customers to do their own research, particularly if they may be selling their home…Just because it's solar, they shouldn't stop thinking about whether it's too good to be true."
    - Nat Kreamer, President, SunRun: "We've had a lot of customers say, 'I really like the fact I've got some options when I'm selling the home…' "

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