When it comes to large solar energy installations in the commercial, institutional and industrial sectors, rarely are the solar panels and the host building owned by the same entity.
In other words, say Walmart installs solar power atop one of its stores. Instead of going it alone and owning the system itself, the retailer instead contracts with one or more other companies to get the project done. A solar company may design, install and maintain the system, which may actually be owned by, say, a third-party financing firm. Walmart, for its part, simply agrees to purchase the system’s electricity output at a fixed rate for a specified term.
This arrangement — and variations thereof — is commonly called a power purchase agreement (PPA). When done right, PPAs offer a win-win situation: the host client benefits from predictably priced clean energy, while the counter parties to the agreement enjoy steady cash flows, tax credits and any other government incentives associated with completing a qualifying project. Moreover, under a PPA approach each party is responsible for what it does best: the financer, finances; the solar company designs, engineers and installs the system; and the host client continues to manage its business.
When done wrong, however, PPAs can add considerable cost and hand-wringing to the solar energy project development process. Simply put, a PPA is a legal contract — which means lawyers are involved. Costs associated with legal counsel and negotiations can pile up quickly. So quickly, in fact, that these transaction costs often kill smaller projects.
What to do? One approach floating around out there is to create a boilerplate PPA that would, at very least, provide a standard jumping off point for negotiations. The latest incarnation of this idea comes from Tioga Energy, which today announced the release of its SurePath™ Solar power purchase agreement. The California-based renewable energy services company is making this standard contract available to the public, billing the document as an “open source PPA.”
Via the press release:
“The PPA is a highly specialized contract that must meet the needs of a variety of stakeholders, including tax investors, project developers and customers,” said Marc Roper, vice president of sales and marketing for Tioga Energy. “We see a lot of resources going toward the drafting and negotiation of these agreements, and it’s clear that some of this expense can be avoided. We feel that by placing our proven, annotated contract in the public domain and offering it as a free template, we will immediately impact transactional costs.”
Pretty interesting — and clever. The full annotated document is available on Tioga’s website. It’s worth checking out.
