Solar Loan (PPA)
Under a PPA, an organization “hosts” a system at its facility. Instead of paying a utility for electricity, the organization pays a predetermined rate per kilowatt-hour to a third-party investor, which is usually set up as a limited liability special purpose entity. This arrangement can allow a host organization to create long-term energy cost stability by locking-in lower energy costs for the next 15 to 25 years, depending on the specific time length of the deal. The solar PPA also allows the organization to go solar without a large upfront investment.
The solar PPA is predicated upon having a tax equity investor monetize available tax benefits, which can be helpful for an organization that doesn’t have the tax appetite to buy a solar system. However, there are a limited number of tax equity investors, and PPAs are project financing arrangements with both host credit risk and project performance risk. This is why an experienced solar partner with strong connections to the investment community can be critical to finding an equity partner and setting up the most advantageous terms.
At the end of the PPA term, the host has three options:
- Purchase the system
- Negotiate another PPA
- Have the solar system removed
- No capital investment
- Pay only for electricity produced