Using The Ppa Model To Spur Renewables

One of the more interesting developments during this latest wave of renewable energy interest and development has been the decision by governments and businesses to go to market with the technology they have, as opposed to waiting for the next (and the next) revolution in renewable technology. This new strategy has accordingly shifted the focus from R">A utility service model pioneered by SunEdison, which lets cash-strapped municipalities and building owners purchase solar power with no upfront capital, is beginning to generate more than just kilowatts.

It's also producing copycats in energy efficiency, heating and cooling. Companies such as Mondial Energy and GeoXperts have adapted the utility approach to solar-thermal and geothermal heat-pump systems, allowing customers to dramatically offset their use of natural gas or electricity without weighing down their balance sheets. The "Power Purchase Agreement" (PPA) is by no means a new model, but SunEdison has taken the lead in facilitating its use in the solar space.

Essentially, in a solar PPA, a company, organization, municipality, etc. enters into a long-term agreement to purchase power from a solar generator. The solar generator is responsible for sourcing funds and building and maintaining the solar energy system on-site, and assumes all risks of ownership. The customer hedges in a certain electricity cost, practically eliminating its exposure to increasingly volatile (and increasing) energy prices. In addition, the customer reaps the public benefits of being a "green" company, without necessarily denting their balance sheet with energy-related capex.

The article also points out a new development - modifying and adapting PPAs to sell conservation and energy efficiency services:

[H20 Applied Technologies] goes into hospitals, colleges and universities and installs energy-efficient equipment at its own expense, in exchange for an 80-percent cut of savings, usually over a six-year contract period. After the contract expires, the customer can purchase the equipment from H2O at "fair market value" -- typically 6 to 8 cents on the dollar.

H2O's trick is to keep the entire agreement off the institution's balance sheet so it doesn't tie up scarce capital that's desperately needed in other areas. It does this by investing in new equipment, or modifications to equipment, rather than changes to a building, which are subject to different accounting rules. Other examples in the article include an RFP by the city of Toronto to install 20 solar rooftop systems on various municipal buildings via a PPA, and GeoXperts, which is trying to leverage the PPA model to install geothermal heating and cooling systems.