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POWER PURCHASE AGREEMENTS
FOR STATE AND LOCAL
GOVERNMENTS
Rachel Rowley
BrownWinick
666 Grand Avenue, Suite 2000
Des Moines, IA 50309-2510
Telephone: 515-242-2417
Facsimile: 515-323-8517
E-mail: rowley@brownwinick.com
What is a PPA?
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A Power Purchase Agreement (PPA) is
an agreement between two parties, one
which generates electricity and one
who purchases the energy.
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It is a common mechanism by which
government entities finance a solar
energy project with a third party.
PPA v. Lease
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Third-party financing of solar energy occurs
through two models:
• Power Purchase Agreements
• Solar Leases
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Lease Model – Consumer will sign a contract
with an installer/developer and pay for the
solar energy system over a period of years or
decades. Consumer does not pay for the
power produced.
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PPA v. Lease, cont’d.
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PPA Model – An installer/developer builds a solar energy
system on a consumer’s property at no cost. The solar
energy system offsets the consumer’s electric utility bill,
and the developer sells the power generated to the
consumer at a fixed rate, typically lower than the local
utility.
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Some states do not allow PPAs and therefore,
customers have to finance solar via a lease.
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Iowa Supreme Court recently found PPAs are allowed.
SZ Enterprises v. IUB, No. 13-0642, decided July 11,
2014.
Overview of PPA Financing
Advantages of PPA
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No/low up-front costs
Ability for governmental entity to enjoy lower
electricity prices thanks to savings passed on
from federal tax incentives.
A predictable cost of electricity over 15-25
years.
No need to deal with complex system design
and permitting process.
No operating and maintenance
responsibilities.
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PPA Checklist
1.
Project Planning for Solar PV with
PPA Financing
• Identify potential locations
• Online tools help – Google Earth, In My Backyard
• Issue a Request for Proposal (RFP)
• May want to aggregate multiple smaller sites
• Contract Development
• Issues include: REC sales, insurance, easements
necessary to build solar arrays, liability, production
guarantees
PPA Checklist, cont’d.
• Permitting and Rebate Processing
• System owner usually files permits and rebates
• Government agency should note filing deadlines for
state-level incentives
• Database of State Incentives for Renewables and
Efficiency – www.dsireusa.org
• Project design, Procurement, Construction,
Commissioning
• The developer will complete a detailed design based on
the term sheet.
• The commissioning step certifies interconnection with
the utility and permits system startup.
• The PPA should establish firm realistic developer
responsibilities and damages for failure to perform.
PPA Checklist, cont’d.
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PPA Checklist, cont’d.
2.
Financial and Contractual
Considerations
• Estimating System Size
• First step for determining the financial feasibility of
a PPA is to estimate the appropriate size of the
solar PV system.
• In My Backyard is free tool to help make this
assessment – www.nrel.gov/eis/imby/
• Estimates system size, annual electricity
generated, and monetary value of the
electricity generated
PPA Checklist, cont’d.
• PPA Pricing
• Key advantage – predictable cost of electricity over life
of a 15-25 year contract
• Most common PPA pricing scenarios: fixed price and
fixed escalator
• Fixed price: electricity sold to government agency at
fixed rate over the life of the contract. (It is possible for
PPA price to be higher than the utility rate at beginning.)
Source NREL
PPA Checklist, cont’d.
• Fixed-Escalator: electricity produced by the system
is sold to the government agency at a price that
increases at a predetermined rate, usually 2-5%.
Source NREL
• Price Based on Utility Rate: electricity price is
based on the utility rate with a predetermined
discount. This is not common. It is complicated to
structure and undermines the price-predictability
advantage of PPA.
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PPA Checklist, cont’d.
• Prepay: Some government agencies like to prepay
for a portion of the power to be generated or make
investments to lower the cost of the installed
system. This can reduce cost of electricity agreed
to in the PPA and takes advantage of
governmental entities' ability to issue tax-exempt
debt.
PPA Checklist, cont’d.
3.
Interconnection and Net Metering
• Interconnection
• Federal policy requires utilities accept interconnection
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from solar power stations, but each utility’s process
varies.
The system owner and the utility will enter into an
interconnection agreement.
Agreement provides for conditions (stand-by charges),
equipment, and processes.
Interstate Renewable Energy Council has report on
state specific interconnection standards:
www.irecusa.org/index.php?id=86
PPA Checklist, cont’d.
• Net metering
• Policy allows solar-system owner to receive credit
on electricity bill for surplus solar electricity sent
back to the utility
• Electricity meter “spins backwards”
• States differ on net metering
• Iowa allows net metering: 199 IAC 15.11(5)
provides that each utility shall offer to provide net
metering.
• However, utilities have filed tariffs that limit the
ability to net metering.
• These tariffs are currently being litigated.
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PPA Checklist, cont’d.
• Benefits of net metering for the
consumer:
• Represents the full retail value of electricity
delivered
• Allows to put excess electricity back into the
electric grid and retrieve it later, free of charge
– more cost effective
• Captures energy generated and consumed –
provides annual performance data
PPA Checklist, cont’d.
4.
Federal Tax Incentives for the System
Owner
• It is important for the System Owner to take
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advantage of federal and state tax incentives that
the government entity cannot.
Two most significant tax benefits:
• Investment Tax Credit (ITC) – offers tax-paying entities
a 30% tax credit on total cost of solar system.
• Accelerated Depreciation – accounting practice used to
allocate the cost of wear and tear on a piece of
equipment over time – in this case more quickly. The
IRS allows a 5 year accelerated cost recovery for solar
arrays.
PPA Checklist, cont’d.
5.
Renewable Energy Certificates
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Iowa has implemented renewable portfolio standard
policies (RPS)
Utilities prove RPS compliance using renewable
energy certificates (RECs)
RECs can be traded separately from the electricity.
PPAs are normally structured so that the RECs remain
with the system owner.
Important – if consumer does not buy the RECs,
consumer cannot say that it is hosting a renewable
energy project; may only say that it is powered by
renewable energy.
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PPA Checklist, cont’d.
6.
Insurance
• Many governmental entities may self-insure
• However, interconnection rules may require
additional coverage
• Cost of insurance can increase energy pricing by
5-10%
• Generally, insurance is responsibility of system
owner.
• However, if system owner covers insurance cost,
cost will be factored into the PPA
• It may be cheaper for the government entity to
purchase insurance directly and name the system
owner as an additional insured party
Standard Terms of PPAs
License – The consumer will grant the system owner
a license to use property for installing, operating and
maintaining solar facility.
Purchase of Solar Facility– The PPA may give the
consumer the option to purchase the solar facility at
the end of the initial term of the PPA.
Purchase of Delivered Energy – The PPA will require
the consumer to purchase all the generated energy
at a set price. Some PPAs will make the price
conditioned upon the system owner’s approval of
eligibility for receipt of Iowa Renewable Energy
Credits or Iowa Renewable Energy Tax Credits.
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Standard Terms of PPAs, cont’d.
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Renewable Energy Credits/ Tax Credits –
The parties will expressly provide who gets
title and rights for renewable energy credits
and renewable energy tax credits.
Seller’s Obligations – Seller’s obligations
normally include design and construction of
the solar facility, obtaining any applicable
permits, maintenance and repair of solar
facility, production guarantees, and minimize
any unavailability of the solar power.
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Sample Terms of PPAs, cont’d
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Consumer’s Obligations – Consumer’s
obligations include the payment of
taxes, obtain approvals for
interconnection with the utility, and
assist the system owner in obtaining
the applicable tax and energy credits.
Sample PPAs
Government Level
State
County
Name
Caltrans District 10 Solar
Project
Boulder County Solar
Project
City
Denver Airport Solar
Project
Consumer
California Dept. of
Transportation
Boulder County
Denver International Airport
Utility
Pacific Gas & Electric
Xcel Energy
Xcel Energy
Size (DC)
248 kW
615 kW
2,000 kW
Annual Production
347,407 kWh
869,100 kWh
3,000,000 kWh
Type
123 kW rooftop, 125 kW
carport
570 kW rooftop, 45 kW
ground
Ground-mount, single-axis
tracking
Area
22,200 sq ft
8 county buildings
7.5 acres
Developer
Sun Edison, LLC
Bella Energy
World Water & Solar
Technologies
Owner
Sun Edison, LLC
Rockwell Financial
MMA Renewable Ventures
PPA Terms
20 yrs, 5.5% discount from
utility rates
20 yrs, fixed price 6.5
cent/kWh for first 7 years,
renegotiate price and
buyout option at beginning
of year 8
25 years, fixed-price 6
cents/kWh for first 5 years,
buyout option at beginning
of year 6 or price increases
to 10.5 cents/kWh
Website: www.brownwinick.com
Toll Free Phone Number: 1-888-282-3515
OFFICE LOCATIONS:
666 Grand Avenue, Suite 2000
Des Moines, Iowa 50309-2510
Telephone: (515) 242-2400
Facsimile: (515) 283-0231
616 Franklin Place
Pella, Iowa 50219
Telephone: (641) 628-4513
Facsimile: (641) 628-8494
DISCLAIMER: No oral or written statement made by BrownWinick attorneys should
be interpreted by the recipient as suggesting a need to obtain legal counsel from
BrownWinick or any other firm, nor as suggesting a need to take legal action. Do not
attempt to solve individual problems upon the basis of general information provided
by any BrownWinick attorney, as slight changes in fact situations may cause a
material change in legal result.
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