SOLAR PPA BUYOUT

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EVALUATING THE BENEFITS , COSTS AND RISKS OF A BUYOUT

A Power Purchase Agreement (PPA) is an arrangement where a solar developer constructs, owns and operates a solar project on a property and sells power from the project to the property owner. The arrangement generates savings for the property owner if the power purchased from the solar project is less expensive than the cost of energy that would otherwise have been bought from the utility. Most PPA agreements have buyout provisions: the ability to buyout the contract before the full term, which is typically 20+ years. Buyout provisions vary widely and are not offered before Year 7 of the contract.


WHY BUY OUT A PPA?

  1. TO SAVE MONEY

    • Many early PPAs had high energy rates and annual price escalators as high as 4% or more. High escalators together with changing utility tariffs can result in PPA energy costing more than energy otherwise purchased from the electric utility.

  2. CAPITAL EXPENDITURE TO REDUCE OPERATING COSTS

    • When low-cost capital is available, buying out a PPA contract and taking ownership of the solar asset can lower operational costs.

  3. A CHANGE OF PLANS

    • Changes to facilities can require a solar project to be moved. Buying out a PPA is often the more economic than paying for energy while the project is offline and paying a PPA owner to move a system.

 
 

SOME PPAS ARE UNDERWATER, PARTICULARLY OLDER PPAS WITH HIGH RATES/ESCALATORS OR FOR SYSTEMS THAT HAVE BEEN OPERATING FOR SEVERAL YEARS.

HOW TO DETERMINE IF A PPA BUYOUT IS RIGHT FOR YOU

To determine if a buyout is right for your project, Sage recommends the following:

  1. Evaluate your PPA agreement and identify the buyout and termination provisions.
  2. Identify who owns your system; many projects have transferred ownership multiple times.
  3. Identify the financing mechanisms available for the buyout.
  4. Identify the costs and risks associated with owning and operating the solar facility (O&M, insurance, decommissioning, etc.)
  5. Evaluate the current all-in cost of electrical energy, the sum of both PPA and residual utility energy costs.
  6. Conservative lifecycle analysis that considers utility tariff restructuring, long-term energy market trends, system performance degradation, O&M, and the various costs of ownership.
  7. Perform an independent recommissioning of the system to identify any repairs or underperformance as part of buyout negotiations.
  8. Assess Fair Market Value (FMV), which may require an assessment according to IRS guidelines.
  9. Assess impact to equipment warranty provisions through change of ownership.
  10. Negotiate a buyout price.

If you’re a customer considering a solar PPA buyout, Sage can provide the independent expertise to help manage risk and maximize the lifetime savings of your project.

IF YOU HAVE ANY QUESTIONS ABOUT YOUR PPA, CONTACT SAGE RENEWABLES AT 415-663-9914.

We’ve provided independent energy expertise to more than 100 California public agencies to help plan, procure, implement and operate advanced energy projects.