October, 2008 A Rahus Institute Publication October, 2008 A Rahus Institute Publication DISCLAIMER: This Guide is a Rahus Institute publication and was sponsored by commercial and non-profit organizations interested in solar education and a healthy marketplace. Neither the Rahus Institute nor any of the project sponsors, editors, or advi- sors makes warranty, expressed or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, product, or process described herein. We have attempted to provide full attribution for all external sources of data and graphics. Reference herein to any specific commercial product, process, or service does not imply its endorsement, recommendation, or favoring by the Guide advisors, editors, sponsors, or the Rahus Institute. This report may be downloaded from CaliforniaSolarCenter.org. First Edition: October, 2008 Customer’s Guide to Solar Power Purchase Agreements Chapter 1 Is solar power right for our organization? . 3. Chapter 2 What is a Solar Power Purchase Agreement (SPPA) and how will it benefit us? . 5. Chapter 3 Utility support & financial considerations . 9. Chapter 4 Steps to a successful project . 14. Chapter 5 Other ways to buy solar electricity . 19. Chapter 6 Real world examples . 24. Chapter 7 Summary lessons . 20. Appendix 1: Solar technology basics . 30. Appendix 2: SPPA contracts technical guide . 33. Resources Acronym glossary Terms glossary List of figures Guide description Advisory committee The Customer’s Guide to Solar Power Purchase Wally McOuat, HMH Resources; Patrick McCoy, Agreements is for organizations that would like assis- California Department of General Services; Morten Lund, tance navigating purchase and contract decisions as they Foley & Lardner LLP; Tor Allen, Rahus Institute . move to host solar power systems . We prepared the Guide for a broad audience, including businesses, government agencies, public institutions such as school districts and Sponsors non-profits . This project is made possible by solar services Anaheim Public Utilities, City of Palo Alto Utilities, City of providers who believe an educated customer is their best Lodi Electric Utility Department, Energy Trust of Oregon, business partner . MMA Renewable Ventures, Rahus Institute, Solar Power Partners, SunEdison . Acknowledgments We are most thankful to our advisory and editorial com- Core references mittees for their outstanding contributions and for sharing Below are some of the core resources used in drafting this their expertise . In addition, thanks to Robert Martin from guide . the San Diego Unified School District and John Supp from the California Sustainable Energy Center for their insights . • “Guide to Purchasing Green Power,” Green Power Partnership, September 2004 . • “Solar Power Services: How PPAs Are Changing the PV Authors Value Chain,” executive summary, GreenTech Media, Liz Merry, Verve Solar Consulting, author and editor February 2008 . Elisa Wood, RealEnergyWriters com,. co-author • “Solar Photovoltaic Financing: Deployment on Public Catherine Paglin, proofreading Property by State and Local Governments,” National Renewable Energy Lab, May 2008 . • “Power Purchase Agreements: The New Frontier,” forum Editorial committee held at Solar Power 2007 conference, September 2007, Gianluca Signorelli, MMA Renewable Ventures; Todd Long Beach, California . Michaels and Todd Halvorsen, Solar Power Partners; Kelly Speakes-Backman, SunEdison; Betsy Kauffman, Energy Trust of Oregon . Chapter 1 Is solar power right for our organization? Introduction This Guide is designed to help your organization join the The Guide focuses solely on grid-tied photovoltaic (PV) rapidly growing number of school districts, businesses, and technology, which produces electricity from sunlight for government institutions that now use solar electricity . We customers connected to the local utility grid . These sys- suggest factors to consider and questions to ask as you work tems reduce, rather than completely replace, the power you with staff members, solar vendors, and other experts who now receive from your electric utility . We distinguish these will help you make the transition to clean energy . systems from off-grid solar, which is not paired with back- up electricity from the local utility . Here you will find detailed information on the increasingly popular Solar Power Purchase Agreement, a contractual You are adopting a technology that is growing quickly in arrangement that minimizes your upfront costs for solar the United States -- more than 48 percent annually since electricity . We also offer you guidance in securing incen- 2000 (Figure 1) . This impressive expansion comes as the tives, lowering costs, and navigating renewable energy cost of electricity from traditional sources increases, and certificate markets . We discuss other ownership and lease solar technology matures worldwide . options and when they might be the best choice . And finally, we supply real world success stories . Capacity of Annual U.S. Photovoltaic Installations (2000-2007) 250 Grid-Connected Off-Grid 200 150 DC MW 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 FIGURE 1 Data from “U.S. Solar Market Trends 2007,” Larry Sherwood, Interstate Renewable Energy Council Is solar power right for our organization? 3 Today’s solar industry Today’s solar technology is highly reliable, safe, and backed If you are not familiar with solar by strong equipment warranties based on solid field-testing technology, please review Appendix 1 data . Customers can find dependable, well-trained solar to learn how these systems work. installers who have provided systems for organizations including major universities, retailers, hotels, and govern- ment entities . By the end of 2007 more than 43,000 grid- tied solar electric systems operated in the United States, producing enough electricity for close to 500,000 homes . More solar electricity is added daily, as the cost of utility power rises and customer awareness grows . If financial support for solar incentives you should seriously consider using solar power . Below we list some of the benefits of an on-site solar instal- lation, as well as challenges that may occur in particular circumstances . Benefits • Provides a predictable cost for electricity over the life of the system • Makes clear to the public your environmental commitment by producing clean electricity at your facility • Offers flexible expansion if your needs change • May support the local economy and generate new jobs • Produces back-up power in a blackout if storage capacity is added Challenges • Not all regions have access to financial solar incentives • May require a high upfront investment if the equipment is to be purchased directly • Requires monitoring over the life of the system to ensure proper production • Involves planning and project management • Requires owners to retain renewable energy certificates associated with the system in order to make certain environmental claims (See Chapter 3) 4 The Customer’s Guide to Solar Power Purchase Agreements Chapter 2 What is a Solar Power Purchase Agreement (SPPA) and how will it benefit us? The Solar Power Purchase Agreement (SPPA) is an alterna- and WalMart department stores, and institutions, such as tive to financing and owning the system . It offers you an airports and water districts, use these agreements for buy- opportunity to install solar power at your facility without ing solar electricity . Those familiar with the power indus- paying upfront costs or worrying about system operation try will find an SPPA is much like the traditional “power and maintenance . Sometimes referred to as a “third party” purchase agreement,” a common contract between utilities ownership model, this approach lets you focus on your core and large centralized energy plants . Because SPPAs rep- mission, while solar experts manage your energy system . resent a good investment opportunity, major investment For 15 to 20 years, you enjoy predictable, pre-set electricity firms such as Goldman Sachs and Morgan Stanley provide prices, and power from a solar system that is a source of financing to these projects . pride for your organization . As you consider the benefits of an SPPA, we also want Power purchase agreements are a well-established con- you to know there are other ways to buy solar gener- tract mechanism . Many large businesses, such as Kohl’s ated electricity . For example, you might buy your system Benefits to you of an SPPA Challenges • Demands no upfront expense in order to buy • Demands more complex negotiations and solar power possibly higher transaction costs than buying system • Provides predetermined electricity rates for outright term of contract, typically about 15 to 20 • Creates potential conflict between your desire years to achieve green policy goals and save money on • Offers production monitoring and metering electricity by experts • Ongoing administrative costs of paying separate • System owners take responsibility for opera- electricity invoices, and allowing accesss to equip- tion and maintenance of equipment ment by maintenance personnel • Supports renewable energy industry and local • The SPPA will be owned by a special purpose entity jobs (for installation and maintenance) that may have limited liability and limited • Offers possible path to meet your green policy assets, and the SPE parties may change over time objectives • The host customer may be prohibited from mak- • Places emphasis on ensuring maximum