Fillable Printable Power Purchase Agreement Checklist for State and Local Governments
Fillable Printable Power Purchase Agreement Checklist for State and Local Governments
Power Purchase Agreement Checklist for State and Local Governments
This fact sheet provides information and guidance on the
solar photovoltaic (PV) power purchase agreement (PPA),
which is a nancing mechanism that state and local govern-
ment entities can use to acquire clean, renewable energy. We
address the nancial, logistical, and legal questions relevant
to implementing a PPA, but we do not examine the technical
details—those can be discussed later with the developer/con-
tractor. This fact sheet is written to support decision makers
in U.S. state and local governments who are aware of solar
PPAs and may have a cursory knowledge of their structure
but they still require further information before committing
to a particular project.
Overview of PPA Financing
The PPA nancing model is a “third-party” ownership
model, which requires a separate, taxable entity (“system
owner”) to procure, install, and operate the solar PV system
on a consumer’s premises (i.e., the government agency).
The government agency enters into a long-term contract
(typically referred to as the PPA) to purchase 100% of the
electricity generated by the system from the system owner.
Figure 1 illustrates the nancial and power ows among the
consumer, system owner, and the utility. Renewable energy
certicates (RECs), interconnection, and net metering are dis-
cussed later. Basic terms for three example PPAs are included
at the end of this fact sheet.
The system owner is often a third-party investor (“tax inves-
tor”) who provides investment capital to the project in return
for tax benets. The tax investor is usually a limited liability
corporation (LLC) backed by one or more nancial institu-
tions. In addition to receiving revenues from electricity sales,
they can also benet from federal tax incentives. These tax
incentives can account for approximately 50% of the project’s
nancial return (Bolinger 2009, Rahus 2008). Without the
PPA structure, the government agency could not benet from
these federal incentives due to its tax-exempt status.
1
The developer and the system owner often are distinct and
separate legal entities. In this case, the developer structures
the deal and is simply paid for its services. However, the
developer will make the ownership structure transparent to
the government agency and will be the only contact through-
out the process. For this reason, this fact sheet will refer to
“system owner” and developer as one in the same.
While there are other mechanisms to nance solar PV
systems, this publication focuses solely on PPA nancing
because of its important advantages:
2
1. No/low up-front cost.
2. Ability for tax-exempt entity to enjoy lower
electricity prices thanks to savings passed on from
federal tax incentives.
3. A predictable cost of electricity over 15–25 years.
4. No need to deal with complex system design and
permitting process.
5. No operating and maintenance responsibilities.
1
Clean renewable energy bonds (CREBs) are also available to municipalities
and other public entities as an alternative means of beneting from federal tax
benets.
2
For a full discussion of alternative nancing mechanisms, see Cory et al.
2009.
Figure 1
Contracts and Cash Flow in Third-Party
Ownership/PPA Model
Fact Sheet Series on Financing Renewable Energy Projects
Energy Analysis
NREL is a national laboratory of the U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, operated by the Alliance for Sustainable Energy, LLC.
Power Purchase Agreement Checklist
for State and Local Governments
Utility buys unused
solar electricity;
net-metering
interconnection
agreement
Developer buyout provision
Money
Electricity/RECs
Consumer buys
solar electricity
from developer
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Utility buys renewable
energy credits from
system owner
Consumer
buys
traditional
electricity
System owner
installs, owns,
maintains PV
system on
consumer facility
Source: NREL
National Renewable
Energy Laboratory
Innovation for Our Energy Future
Sponsorship Format Reversed
Horizontal Format-B Reversed
Color: White
Vertical Format Reversed-A
Vertical Format Reversed-B
National Renewable
Energy Laboratory
National Renewable
Energy Laboratory
Innovation for Our Energy Future
National Renewable Energy Laboratory
Innovation for Our Energy Future
Horizontal Format-A Reversed
National Renewable Energy Laboratory
Innovation for Our Energy Future
Power Purchase Agreement Checklist
High-Level Project Plan for Solar PV with
PPA Financing
Implementing power purchase agreements involves many
facets of an organization: decision maker, energy manager,
facilities manager, contracting ofcer, attorney, budget of-
cial, real estate manager, environmental and safety experts,
and potentially others (Shah 2009). While it is understood
that some employees may hold several of these roles, it is
important that all skill sets are engaged early in the process.
Execution of a PPA requires the following project coordina-
tion efforts, although some may be concurrent:
3
Step 1. Identify Potential Locations
Identify approximate area available for PV installation
including any potential shading. The areas may be either
on rooftops or on the ground. A general guideline for solar
installations is 5–10 watts (W) per square foot of usable
rooftop or other space.
4
In the planning stages, it is useful to
create a CD that contains site plans and to use Google Earth
software to capture photos of the proposed sites (Pechman
2008). In addition, it is helpful to identify current electricity
costs. Estimating System Size (this page) discusses the online
tools used to evaluate system performance for U.S. buildings.
Step 2. Issue a Request for Proposal (RFP) to Competitively
Select a Developer
If the aggregated sites are 500 kW or more in electricity
demand, then the request for proposal (RFP) process will
likely be the best way to proceed. If the aggregate demand is
signicantly less, then it may not receive sufcient response
rates from developers or it may receive responses with
expensive electricity pricing. For smaller sites, government
entities should either 1) seek to aggregate multiple sites into
a single RFP or 2) contact developers directly to receive bids
without a formal RFP process (if legally permissible within
the jurisdiction).
Links to sample RFP documents (and other useful docu-
ments) can be found at the end of this fact sheet. The materi-
als generated in Step 1 should be included in the RFP along
with any language or requirements for the contract. In
addition, the logistical information that bidders may require
to create their proposals (described later) should be included.
It is also worthwhile to create a process for site visits.
3
Adapted from a report by GreenTech Media (Guice 2008) and from conver-
sations with Bob Westby, NREL technology manager for the Federal Energy
Management Program (FEMP).
4
This range represents both lower efciency thin-lm and higher efciency
crystalline solar installations. The location of the array (rooftop or ground) can
also affect the power density. Source: http://www.solarbuzz.com/Consumer/
FastFacts.htm
Renewable industry associations can help identify Web sites
that accept RFPs. Each bidder will respond with an initial
proposal including a term sheet specifying estimated output,
pricing terms, ownership of environmental attributes (i.e.,
RECs) and any perceived engineering issues.
Step 3. Contract Development
After a winning bid is selected, the contracts must be negoti-
ated—this is a time-sensitive process. In addition to the PPA
between the government agency and the system owner, there
will be a lease or easement specifying terms for access to the
property (both for construction and maintenance). REC sales
may be included in the PPA or as an annex to it (see Page 6
for details on RECs). Insurance and potential municipal law
issues that may be pertinent to contract development are on
Page 8.
Step 4. Permitting and Rebate Processing
The system owner (developer) will usually be responsible
for ling permits and rebates in a timely manner. However,
the government agency should note ling deadlines for
state-level incentives because there may be limited windows
or auction processes. The Database of State Incentives for
Renewables and Efciency (http://www.dsireusa.org/) is a
useful resource to help understand the process for your state.
Step 5. Project Design, Procurement, Construction, and
Commissioning
The developer will complete a detailed design based on
the term sheet and more precise measurements; it will then
procure, install, and commission the solar PV equipment. The
commissioning step certies interconnection with the utility
and permits system startup. Once again, this needs to be done
within the timing determined by the state incentives. Failure
to meet the deadlines may result in forfeiture of benets,
which will likely change the electricity price to the govern-
ment agency in the contract. The PPA should rmly establish
realistic developer responsibilities along with a process for
determining monetary damages for failure to perform.
Financial and Contractual Considerations
The developer’s proposal should include detailed projections
of all nancial considerations. This section helps the govern-
ment agency become a more informed purchaser by explain-
ing key components that are needed for a complete proposal.
Estimating System Size
One of the rst steps for determining the nancial feasibility
of a PPA is to estimate the available roof and ground space,
and to approximate the size of the PV system or systems.
NREL provides a free online tool called In My Backyard
(IMBY) to make this assessment—the program can be found
at http://www.nrel.gov/eis/imby/
Page 2
The IMBY tool, which uses a Google Maps interface, allows
users to zoom-in on a particular building or location and
trace the approximate perimeter of the potential solar array.
From this information, IMBY simulates nancial and tech-
nical aspects of the system; the results provide a rst-level
estimate and might not capture the exact situation (system
performance, system cost, or utility bills) at a particular loca-
tion (an example is shown in Figure 2). IMBY estimates the
system size and annual electricity production as well as the
monetary value of the electricity generated by the photovol-
taic system. Users can adjust primary technical and nancial
inputs to simulate more specic conditions. The amount of
electricity generated by the solar system can be compared to
the facility’s monthly utility electric bills to estimate potential
offset capacity of the PV system.
5
PPA Pricing
A key advantage of power purchase agreements is the
predictable cost of electricity over the life of a 15- to 25-year
contract. This avoids unpredictable price uctuations from
utility rates, which are typically dependent on fossil fuel
prices in most of the United States. The approval of climate
change legislation also may cause utility electricity rates to
5
It is important to be cognizant of any planned or potential changes to the
facility that could affect the electrical demand (and, therefore, electricity
offset) such as the additions to the facility.
increase signicantly; thus, the projected savings may
be further accentuated. In a PPA, the electricity rates are
predetermined, explicitly spelled out in the contract, and
legally binding with no dependency on fossil fuel or climate
change legislation.
The most common PPA pricing scenarios are xed price
and xed escalator. In a xed-price scheme, electricity
produced by the PV system is sold to the government agency
at a xed rate over the life of the contract (see Figure 3 for
an example of this scenario). Note that it is possible for the
PPA price to be higher than the utility rate at the beginning.
However, over time, the utility rate is expected to overtake
the PPA price such that the PPA generates positive savings
over the life of the contract. This structure is most favorable
when there is concern that the utility rates will increase
signicantly.
In a xed-escalator scheme, electricity produced by the sys-
tem is sold to the government agency at a price that increases
at a predetermined rate, usually 2–5% (see Figure 4 for an
example of this scenario). Some system owners will offer a
rate structure that escalates for a time period (e.g., 10 years)
and then remains xed for the remainder of the contract.
Page 3
Electricity
(¢/kWh)
0
10
20
30
20-Year PPA
PPA Rate
Utility Rate
PPA Rate
Utility Rate
Electricity
(¢/kWh)
0
10
20
30
20-Year PPA
Figure 3
Fixed-Price PPA
Figure 4
PPA Price Escalator
Figure 2
IMBY Example
Source: NREL
Power Purchase Agreement Checklist
A less common PPA pricing model involves the PPA price
based on the utility rate with a predetermined discount.
While this ensures that the PPA price is always lower than
utility rates, it is complicated to structure and it undermines
the price-predictability advantage of a PPA.
A recently emerging PPA structure has consumers either 1)
prepay for a portion of the power to be generated by the PV
system or 2) make certain investments at the site to lower
the installed cost of the system. Either method can reduce
the cost of electricity agreed to in the PPA itself. This struc-
ture takes advantage of a governmental entity’s ability to
issue tax-exempt debt or to tap other sources of funding to
buy-down the cost of the project. Prepayments can improve
economics for both parties and provide greater price stability
over the life of the contract. Boulder County exercised this
option by making investments to lower the project costs (see
the table on Page 10, which provides examples of PPA pricing
and structures from state and local government projects in
California and Colorado).
Interconnection and Net Metering
Interconnection to the existing electrical grid and net meter-
ing are important policies to consider.
6
Interconnection
standards vary according to state-mandated rules (and
sometimes by utility), which regulate the process by which
renewable energy systems are connected to the electrical
grid. Federal policy mandates that utilities accept intercon-
nection from solar power stations, but each utility’s process
varies. The system owner and utility develop an interconnec-
tion agreement, which spells out the conditions, equipment,
and processes. Such conditions may include standby charges,
which are fees that utilities impose on solar system owners to
account for the cost of maintaining resources in case the solar
system is not generating. Additionally, the project host and
developer should consider utility tariff charges applicable to
electricity purchased in backup mode—contact your local
utility to fully comprehend the process of interconnection in
the early stages of RFP development. The Interstate Renew-
able Energy Council has a report on state-specic intercon-
nection standards, which is available at http://www.irecusa.
org/index.php?id=86.
6
The 2008 Edition of Freeing the Grid, issued by the Network for New Energy
Choices, provides a listing of the best and worst practices in state net-meter-
ing policies and interconnection standards. Much of the report discusses
the technical aspects, which your developer should be able to address.
http://www.newenergychoices.org/uploads/FreeingTheGrid2008_report.pdf
Page 4
Figure 5
Net Metering
Net metering is a policy that allows a solar-system owner
to receive credit on his/her electricity bill for surplus solar
electricity sent back to the utility. The electricity meter
“spins backward,” accurately tracking the excess electricity.
Net-metering regulations vary by state but typically include
specications for the amount of excess electricity that the
utility can count, the rate at which the utility can produce the
credit, and the duration of the agreement (Rahus Institute
2008). States that do not have net-metering guidelines may
require the system owner to install a second meter.
States differ on their net-metering pricing scheme, but they
fall into three basic categories: (1) retail rate (the rate consum-
ers pay), (2) the wholesale rate (market rate), or (3) the utili-
ties’ avoided-generation rate. Time of use (TOU) net metering
is a system of indexing net-metering credits to the value of
the power sold on the market during that time period. This
is advantageous to solar power because it is strongest during
electricity peak demand times (Rahus Institute 2008). Figure
5 shows the states with net-metering policies in place.
Sizing PV systems for specic locations/applications depends
highly on energy demand schedules as well as net-metering
laws. When sizing a PV system, it is important to avoid
the potential for overproduction. If there are unanticipated
changes in demand, or if electricity production is not coinci-
dent with electricity consumption at the site, the PV system
may generate more electricity than the utility can credit the
customer for—some net-metering laws cap this amount.
The risk is overproducing and sending electricity to the
grid without compensation. A facility can produce a
disproportionate amount of energy during peak periods
and may not make up for this discrepancy during off-peak
periods (Pechman 2008).
Federal Tax Incentives for the System Owner
An important aspect of the PPA structure is that a system
owner can take advantage of federal tax incentives that a tax-
exempt entity cannot. The two most signicant tax benets
are the investment tax credit (ITC) and accelerated deprecia-
tion. The ITC offers tax-paying entities a 30% tax credit on the
total cost of their solar system.
7
Accelerated depreciation is an
accounting practice used to allocate the cost of wear and tear
on a piece of equipment over time – in this case, more quickly
than the expected system life. The Internal Revenue Service
(IRS) allows a ve-year modied accelerated cost recovery sys-
tem (MACRS) for commercial PV systems. Although a solar
array may produce power during the entirety of a 20-year
PPA, the system owner can take advantage of the entire tax
benet within the rst ve years. Both of these incentives
7
Under the American Recovery and Reinvestment Act (Recovery Act),
tax-paying entities can elect to recover the ITC using a Department of
Treasury grant, once project construction is complete. This is expected
to improve the nancial benets of the incentive.
alleviate a great deal of nancial risk for system owners,
encourage project development, and help make renewable
energy an affordable alternative to fossil fuel energy sources.
The Value of Renewable Energy Certificates
Twenty-nine states and the District of Columbia have imple-
mented renewable portfolio standard (RPS) policies. An RPS
requires utilities to provide their customers with a minimum
percentage of renewable generation by statutory target dates.
Failure to meet these requirements usually results in compli-
ance penalties. Figure 6 shows these RPS policies by state.
Utilities typically prove RPS compliance using renewable
energy certicates (RECs), which represent 1 megawatt-hour
(MWh) of electricity produced from a renewable source. In
many states, RECs can be traded separately from the electric-
ity. In these cases, the RECs represent the environmental
attributes of renewable energy. In addition, some states offer
carve-outs for solar renewable energy certicates (SRECs) or
distributed generation (DG) (see Figure 6). These states create
separate markets for these RECs (usually at higher prices) or
offer multiple credits for each megawatt-hour. For example,
a 3x multiplier allows the utility to count each REC from
solar electricity as 3 MWh for compliance purposes.
8
States with RPS policies are known as “compliance markets.”
In these markets, utilities can include purchased RECs in
demonstration of compliance with state energy mandates.
This can provide an important source of cash ow to PV
system owners. In addition, states with carve-outs for solar
or DG can realize even higher prices for SRECs.
“Voluntary markets” also exist in which residential, commer-
cial, and industrial consumers can buy SRECs from system
owners to claim their energy is produced from renewable
technologies. The advantage is that consumers do not have
to develop renewable projects but still can claim the environ-
mental benets (Cory 2008).
In general, PPAs are structured so that the RECs remain with
the system owner. However, the host can negotiate to buy the
RECs along with the electricity. This will drive up the price
per kilowatt-hour in the PPA to compensate the system owner
for the RECs. If the host does not buy the RECs, it is important
to manage the claims made regarding the PV system. The
government agency can say it is hosting a renewable energy
project but it cannot say that it is powered by renewable
energy. One option is an SREC swap. In this case, the host
would decide against buying the solar RECs from the PPA
provider and instead buy cheaper replacement RECs (wind
or biomass, for example) in the voluntary market (Coughlin
2009). REC prices in the voluntary markets are substantially
8
Under the Waxman-Markey bill (as of July 2009), Congress is considering
a federal solar multiplier of 3x for all distributed generation projects.
Page 5
Power Purchase Agreement Checklist
lower than in the compliance market. This REC swap would
allow the host to claim green power benets (but not solar
power because the replacement RECs were not SRECs).
State and Utility Cash Incentives
Other important state-level programs are those that provide
cash incentives for system installation. These programs
(often called “buy-down” or “rebate” programs) come in
two varieties. The capacity-based incentive (CBI) provides a
dollar amount per installed watt of PV. Incentives can also be
structured as performance-based incentives (PBI). They do
not provide up-front payments, but rather provide ongoing
payments for each kilowatt-hour of electricity produced over
a time period (e.g., ve years). Consumers will normally pre-
fer CBIs because of the up-front cash. However, some states
prefer PBIs because they encourage better performance.
The downside of these more recent programs is that the
government agency must nance a large part of system
costs (if not under a solar PPA) and incur performance risk
(Bolinger 2009).
Approximately 20 states and 100 utilities offer nancial
incentives for solar photovoltaic projects. Depending on the
state and local programs, these incentives can cover 20-50%
of a project’s cost (DSIRE 2009). Specics for individual state
programs can be found on the Database of State Incentives
for Renewables and Efciency (http://www.dsireusa.org/).
Additional government incentives include state tax credits,
sales tax exemptions, and property tax exemptions, which
can be important under the solar PPA model.
Page 6
Figure 6
States with Renewable Portfolio Standards (indicating solar/DG set-asides)
System Purchase Options
If the host prefers, the solar PPA can include provisions for a
consumer to buy the PV system. This can occur at any point
during the life of the contract but almost always after the
sixth year because of tax recapture issues related to the ITC.
The buyout clause is phrased as the greater of fair market
value (FMV) or some “termination” value (that is higher than
the FMV). This termination value often includes the pres-
ent value of the electricity that would have been generated
under the remaining life of the PPA. Buyout options are more
readily available in third-party PPAs in which the investors
are motivated by the tax incentives rather than long-term
electricity revenues. A different set of investors may have
a longer-term investment horizon and may be less likely to
favor early system-purchase options.
When issuing RFPs and evaluating bids, it is important to
understand the project goals of the potential developers
and decide which most closely align with those of your
organization. From the government agency’s point of view,
there are both benets and responsibilities that come with
owning the system. The obvious benet is that the electric-
ity generated by the PV system can now be consumed by
the host at no cost (nancing charges notwithstanding); the
costs and responsibilities revolve around the need to operate
and maintain the PV system. Owner’s costs include physical
maintenance (including inverter replacement, which can be
costly) and monitoring, as well as nancial aspects such as
insurance.
Although PPAs are inherently structured as a contract by
which a government agency can buy electricity, system own-
ership may be a viable option at some point. If the buyout
option is not available or not exercised by the end of the
contract life, the government agency can purchase the system
at “fair market value,” extend the PPA, or request the system
owner remove the system (Rahus 2008). Government hosts
may want to consider requiring (in the RPF and the PPA) that
the system owner pay for the cost of equipment removal at
contract maturity.
Logistical Considerations
Appropriate roof or land areas must be identied, and there
are also important logistical requirements to consider. The
issues discussed in this section should be included in the
RFP because they will allow the developer to provide a
rmer bid with less assumptions and contingencies.
Rooftop Mounted Arrays
After the RFP, the winning bidder will conduct a structural
analysis to determine whether the roof can sustain the load.
By documenting the condition in the RFP, you may avoid
potential adjustments. It is important to assess the following
information:
•Roof structure and type (at, angled, metal, wood, etc.) –
determines the attachment methods that may be used.
•Orientation of the roof – especially important if it is
a sloped roof. Southern facing roofs are ideal but not
necessarily mandatory.
•Roof manufacturer’s warranty – usually lasts a minimum
of 10 years but can extend over 20 years. Before installing
solar panels, it is important to ensure that the solar installa-
tion will not void the warranty. Systems that do not pen-
etrate the roof surface or membrane are usually acceptable,
but it is important to obtain this allowance in writing prior
to moving forward with the solar project.
•Planned roof replacement – if it is to be scheduled within
a few years, it a good idea to combine projects, which will
cut costs and minimize facility disturbance.
•Potential leak concern – if this exists, you may opt for a
formal roof survey to assess and document the condition of
the roof prior to the solar installation.
•Obstructions on the roof – items such as roof vents and
HVAC equipment can hinder the project.
•Shade from adjacent trees or buildings – can reduce
solar potential.
Ground-Mounted Systems
Ground-mounted photovoltaic systems are advantageous in
some situations because they can be cheaper and easier to
install and can be scaled-up more easily. This reduces the
cost per kilowatt-hour and translates into cheaper energy
costs for the consumer. Additionally, ground systems offer
exibility in the type of technology that can be used. For
example, the project may have tracking technologies, which
can result in higher energy output and better project eco-
nomics. One of the key logistical issues for ground-mounted
systems is the wind speed the system is designed to with-
stand, which depends primarily on the location of the project
site (e.g., hurricane risks); the soil type and strength charac-
teristics are also important. To obtain more accurate bids,
consumers often will have a third-party conduct soil sample
tests prior to issuing an RFP. Wind and soil conditions can
greatly inuence the design and cost of a project. Perimeter
fencing and site monitoring should be specied in the RFP to
ensure security, safety, and compliance with local codes.
Page 7
Power Purchase Agreement Checklist
General Logistical Considerations
Electrical upgrades or changes may affect the system design
and potential interconnection to the electrical grid. Any
planned changes should be documented within the RFP.
For proper maintenance, accessibility to the inverter and
solar array will be important to the system owners through-
out the life of the project.
Fire departments will have building accessibility require-
ments, particularly for roof-mounted systems. Some jurisdic-
tions formally specify these standards and will conrm that
the system meets the requirements during the permitting
phase and nal approval process. In states that do not have
such requirements, it is important for the government agency
and the system owner to gain re department approval early
in the process.
Contractually, operation and ongoing maintenance of the
solar system is typically the responsibility of the system
owner unless otherwise specied.
Insurance
9
While many governmental entities may be able to self-insure,
it is important to investigate the minimum insurance required
by your utility’s interconnection rules. The requirements may
necessitate additional coverage through private insurance.
Unfortunately, insurance underwriters charge fairly high
premiums for PV installations. These premiums can repre-
sent approximately 25% of the annual operating budget and
may be as large as 0.25% to 0.50% of the project installed
costs. According to discussions with developers, the cost of
insurance can increase energy pricing by 5–10%. The high
premiums are due to two underlying reasons: 1) Insurance
underwriters still view PV as a risky technology due to
its lack of long operating history, and 2) the relatively low
number of projects do not allow underwriters to average risk
across a large number of installations (i.e., “the law of large
numbers”). Until recently, Lloyds of London was the only
underwriter for PV in the United States; however, Munich Re,
AIG, Zurich Insurance Group, ACE Ltd., and Chubb are also
actively pursuing renewable energy policies. Reportedly, a
fth underwriter is developing a PV product, but no public
announcements have been made (Kollins et al., forthcoming).
9
Much of this section is adopted from a forthcoming NREL paper:
“Insuring Solar Photovoltaics: Challenges and Possible Solutions”;
Speer, B.; Mendelsohn, M.; and Cory, K.
In general, insurance is the responsibility of the system
owner (developer). At a minimum, the system owner should
be expected to carry both general liability and property
insurance. Additional considerations may be given to sepa-
rate policies for location-specic risks (e.g., hurricane cover-
age in Florida), property-equivalent policies (which cover
engineering), and environmental risk (inclusive of pre-exist-
ing conditions). If covered by the system owner, the cost of
insurance will be factored into the PPA cost of electricity and
not passed through separately. Thus, a fairly recent realiza-
tion is that it may be cheaper for the government agency to
insure the system directly, although they don’t actually own
the system. Then, the system owner is named as an addi-
tional insured party on the policy and agrees to reimburse
the government agency for the premiums. Insurance com-
panies have agreed to this in previous PPAs (Boylston 2008).
Because this can reduce overall project costs, this arrange-
ment deserves further investigation with a provider.
One nal note concerns indemnication for bad-acts and
pre-existing structural or environmental risks. Whether
contractual or not, the government agency may want to
acquire its own insurance to protect itself from the potential
of future liabilities.
Potential Deal Constraints Embedded in
Municipal Laws
10
Municipal laws were written before PV installations were
even a remote consideration. While each jurisdiction operates
under its own unique statutes, this section lists some common
constraints that may be encountered. Listed below are the
categories that may require investigation. More detail on the
following specic issues is provided at the end of this fact sheet:
1. Debt limitations in city codes, state statutes,
and constitutions
2. Restrictions on contracting power in city codes and
state statutes
3. Budgeting, public purpose, and credit-lending issues
4. Public utility rules
5. Authority to grant site interests and buy electricity
10
Much of this section is adapted from the transcript of a June 12, 2008,
NREL conference call led by Patrick Boylston of Stoel Rives LLP.
Page 8
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Conclusions
Financing solar PV through a power purchase agreement
allows state and local governments to benet from clean
renewable energy while minimizing up-front expenditures
and outsourcing O&M responsibilities. Also important, a
PPA provides a predictable electricity cost over the length of
the contract.
This fact sheet is a concise guide that will help states and
municipalities with the solar PPA process. The following ve
steps are recommended to formally launch a project (and are
described in this brief):
Step 1: Identify Potential Locations
Step 2: Issue a Request for Proposal (RFP) to Competitively
Select a Developer
Step 3: Contract Development
Step 4: Permitting and Rebate Processing
Step 5: Project Design, Procurement, Construction, and
Commissioning
The U.S. Department of Energy (DOE) can help facilitate the
process by providing quick, short-term access to expertise on
renewable energy and energy efciency programs. This is
coordinated through the Technical Assistance Project (TAP)
for state and local ofcials.
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More information on the program
can be found at http://apps1.eere.energy.gov/wip/tap.cfm.
References
Bolinger, M. (January 2009). “Financing Non-Residential
Photovoltaic Projects: Options and Implications.” Published
by Lawrence Berkeley National Laboratory (LBNL-1410E).
http://eetd.lbl.gov/EA/EMP/reports/lbnl-1410e.pdf.
Boylston, P. (June 13, 2008). Transcript from conference call
presentation “Navigating the Legal, Tax and Finance Issues
Associated with Installation of Municipal PV Systems”
hosted by Stoel Rives LLP and the National Renewable
Energy Laboratory (NREL).
Cory, K.; Coggeshall, C.; Coughlin, J.; Kreycik, C. (2009).
“Solar Photovoltaic Financing: Deployment by Federal Gov-
ernment Agencies.” National Renewable Energy Laboratory
(NREL), http://www.nrel.gov/docs/fy09osti/46397.pdf
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TAP currently has a focus on assisting programs that are related to
Recovery Act funds.
Cory, K.; Coggeshall, C.; Coughlin, J. (May 2008) “Solar
Photovoltaic Financing: Deployment on Public Property
by State and Local Governments.” NREL Technical Report
TP-670-43115 http://www.nrel.gov/docs/fy08osti/43115.pdf
Coughlin, J. (May 27, 2009). Presentation at TAP Webcast
“Financing Public Sector PV Projects.” National Renewable
Energy Laboratory (NREL).
Guice, J.; King, J. (February 14, 2008). “Solar Power Services:
How PPAs are changing the PV Value Chain.” Greentech
Media Inc.
James, R. (October 2008). “Freeing the Grid: Best and
Worst Practices in State Net Metering Policies and
Interconnection Standards”. Network for New Energy
Choices. http://www.newenergychoices.org/uploads/
FreeingTheGrid2008_report.pdf
Kollins, K.; Speers, B.; Cory, K. “Insuring Photovoltaics:
Challenges and Possible Solutions.” National Renewable
Energy Laboratory (NREL); Forthcoming Release.
Pechman, C.; Brown, P. (April 2008). “Investing in Solar Pho-
tovoltaics: A School District’s Story.” The Electricity Journal;
Vol. 21:3. http://www.sciencedirect.com/science/article/
B6VSS-4S9FH5F-1/2/0c4658faa0cfea7ac8d5c3a0df77a40e
Rahus Institute. (October 2008). “The Consumer’s Guide
to Solar Power Purchase Agreements.” http://www.califor-
niasolarcenter.org/pdfs/ppa/Rahus_SPPACustomersGuide_
v20081005HR.pdf
Shah, C. (June 10, 2009). Presentation at Federal Energy Man-
agement Program Webinar “Consumer Sited Power Purchase
Agreements.” National Renewable Energy Laboratory (NREL).
Stoel Rives LLP. (2008). “Lex Helius: The Law of Solar
Energy, A Guide to Business and Legal Issues.” First Edition.
http://www.stoel.com/webles/lawofsolarenergy.pdf
Power Purchase Agreement Checklist
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Sample Terms of Executed Power Purchase Agreements (PPAs)
Government Level State County City
Name
Caltrans District 10 Solar Project Boulder County Solar Project Denver Airport Solar Project
Location
Stockton, California Boulder County Denver, Colorado
Customer
California Department of
Transportation
Boulder County Denver International Airport
Utility
Pacic 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
Location
Maintenance Warehouse
Maintenance Shop
Parking Lot Canopy
Recycling Center
Courthouse
Clerk and Recorder
Addiction Recovery Center
Justice Center
Walden Ponds (ground-mount)
Sundquist
Ground of the Denver International
Airport
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 years, 5.5% discount from
utility rates
20 years, xed-price 6.5 ¢/kWh
for rst 7 years, renegotiate price
and buyout option at beginning
of year 8
25 years, xed-price 6 ¢/kWh for rst 5
years, buyout option at beginning of year
6 or price increases to 10.5 ¢/kWh
Status
Completed September 2007 Completed January 2009 Completed August 2008
Contact
Patrick McCoy
(916) 375-5988
patrick.mc[email protected]
Ann Livington
(303) 441-3517
alivingston@bouldercounty.org
Woods Allee
(303) 342-2632
woods.allee@ydenver.com
Source: NREL
Potential Deal Constraints Embedded in Municipal Laws
This table lists potential constraints posed by municipal laws. Not all issues will pertain to your jurisdiction; however, this
table can serve as a short checklist for use in your investigation. The request for proposal (RFP) issue column is meant to
qualify each issue as to whether it needs to be highlighted in the RFP.
Category
RFP
Issue?
Issue Implication General Findings and Next Steps
1. Debt Limitations
in City Codes,
State Statutes,
and Constitutions
No Is PPA debt or
contingent liability?
Debt would require public vote
for approval.
Contingent liability is allowed
under purchasing authority
without a vote.
Most states see as purchasing only what is
consumed. Thus, a vote not is required.
PPA agreements usually called “energy services
agreement” to avoid any appearance of debt.
Must be wary of “take or pay provisions” in PPA
requiring payments regardless of use.
Also, be careful to size so as to not over-
produce based on net-metering rules
No Is system purchase
option debt?
A vote will be required to
approve debt for system
purchase.
It is important that the PPA deems the purchase
as optional at fair market value so that a vote is
not needed until the option is exercised.
2. Restrictions
on Contracting
Power in City
Codes and State
Statutes
Yes Contract Tenor
statutes (e.g.,
limited to 10 yrs
or 15 yrs)
May limit choice of developers
based on investment goals.
Research of local rules and precedents may be
required.
Yes Ability to buy/sell
RECs
When codes and statutes
were created, RECs were
not envisioned.
May determine where
benecial REC ownership is
assigned in PPA.
Each jurisdiction will be different. Research of
local rules and precedents is required.
Is there enough general authority under
electricity purchases (or other) to justify REC
trading?
Yes Public bidding
laws
May preclude RFP process
unless there is an applicable
exemption to public bidding
laws.
Research of local rules and precedents may
be required.
Developer will ask for representation and
warranty that the contract is exempt from public
bidding rules.
3. Public Purpose
and Lending of
Credit Issues
Yes Pre-paying for
electricity
Is this a grant to a for-prot
LLC that owns the PV system?
In most states, authority exists (such as
in the opinion of attorneys general) that it
is permissible if the entities are fullling a
government purpose.
Research may be required if pre-payment
is envisioned.
4. Public Utility
Rules
Yes How many entities
will be buying
electricity (i.e.,
city, county, and/or
other government
entities occupy
site)?
Most state laws and/or rules
clarify that if you are selling
electricity to a certain number of
consumers, then you are a utility
and subject to Public Utility
Commission (PUC) regulation.
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This can be prohibitively
expensive for the developer.
Developers will generally want to contract
only with a single entity that owns the meter.
The costs can then be divided among various
entities.
If the entities are all behind the meter, then they
would not be subject to PUC regulations.
5. Authority to Grant
Site Interests
and Purchase
Electricity
No Lease or
easement?
A lease can have problems
with disposal and interest in
public property, which may
require a public-bidding or
offering process.
Framing the document as an “easement”
instead of a “lease” has worked well. Works
much like a lease except without ability
to transfer it—except in accordance with
agreement (usually restricted).
Source: Boylston 2008
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The threshold is set differently by each state. Most are in the two-ve range.
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