The Mechanics of Power Purchase Agreements with Utility Providers in United States

While obtaining financing for any capital project is becoming increasingly diffcult and the uncertainty in the economy continues, and all this happening as the state rebate rates for renewable energy projects having dropped significantly over the initial rates, the commercial solar market in United States has taken a plunge.  Not only turn-key commercial solar system providers but also PPA providers have seen sharp drops in their businesses.  On the other hand, with the new programs initiated by the government, governmental solar and other renewable energy projects have blossomed.  Most solar companies have changed focus from commercial to governmental projects. 

There is another solar market that is now receiving interest: power purchase agreements with utility companies.  In California, this is a signficiantly different business model than residential, commercial, or governmental solar.  First of all, systems installed under this model do not involve net-metering.  That is to say, electricity does not get traded at the same rate it is purchased.  Instead, the utility company buys the producted electricity back at a wholesale rate.  The rate schedule will be elucidated later.

The second distinction between utility and commercial PPAs in California is that systems installed under utility PPAs do not receive the California CSI or PBI rebates.  There are also no California rebates specifically for utility PPAs.  However, certain cities may offer their own rebates for such utility PPAs.

The third characteristic of utility PPAs is that the utility provider is entitled to purchase all the electricity generated by the facility for the entire term denoted on the PPA contract between the system owner and the utility provider.  While a commercial PPA requires the consent of a customer who has a sufficiently and consistently large electricity usage in order to be able to "buy" all the electricity generated by the system and a financial institution that is ready to take the risk and agrees to sponsor the project, anyone with a proper piece of land and sufficient credit to obtain a Small Business Association (SBA) loan can accomplish a utility PPA project until the quota of the particular utility provider has been filled.

The major benefit of a utility PPA is the guaranteed income for the period of the contract.  This in turn makes it much easier and simpler to find a loan.  In general, the ROI of utility PPAs are very reasonable.  The three major income sources for utility PPAs are: 1. Feed-in tarriff 2. MACRS Depreciation 3. Federal Tax Credit for 30%.  In general, Renewable Energy Credits (REC) of utility PPAs belong to the utility provide but opposite cases may exist. 

The application process for a utility PPA in California, or Small Generating Facility (SGF) in general, is much more detailed and time consuming compared with net-metered solar system applications. There are 5 main steps in the application process: 1. Filing of the Interconnection Request with the utility provider 2. Application for permit with the City 3. Application for a NEPA environmental assessment 4. Petition for Acceptance of Intitial Rate Filing with the Federal Energy Regulatory Commission (FERC), and 5. Registration with WREGIS.

For Pacific Gas & Electric Company (PG&E), there are two different interconnection request application procedures for SGFs, depending on the system size.  For systems larger than 2 MW, the standard application process applies, which involves Pre-Application, Interconnection Request, Scoping Meeting, Feasibility Study, System Impact Study, and Facilities Study processes.  Altogether, these procedures could take up to 4 months.  For systems smaller than 1.5 MW, the Fast Track process applies, which consists only of the Pre-Application and Interconnection Request steps, provided that the screen criteria have been met.

The permit application with the city could take up to 2 months.  It is strongly adviced that the permit application initiated as soon as possible.  Likewise, a NEPA environmental assessment has the potential of resulting in unexpected delays.  There are numerous factors that are in relation with the environment and a thorough NEPA analysis could take several weeks.  The registration with WREGIS is straightforward with the associated fee in the range $250 to $1500, depending on the system size.

FERC is the national authority that regulates the interstate transmission of electricity, among other sources.  FERC manages the wholesale of electricity and anyone who intends to get involved in the wholesale of electricity must obtain a permit from the FERC.  Regional balancing authorities, such as CA ISO, report to FERC, as well as NERC, which in turn oversees WECC.  For a utility PPA, if the interconnection is to take place at a transmission line (>100 kw) as opposed to a distribution line (<100 kw), application with the FERC is imperative.  The procedure consists of first obtaining of a docket number via online application, then application for Self Qualifying Facility via Form 556, and finally the completing of the Petition for Acceptance of Intitial Rate Filing.  The first and second steps are quite straightforward but the last step involves the Pivotal Analysis and the Market Share Analysis, which require information such as Balancing Authority Area Reserve Requirement and Average Daily Peak Native Load in Peak Month.

Whether for unused land or financial resources, utility PPAs are economically sound investment assets.  In today's economy, its PROs can easily outweigh its CONs.  However, time and efficiency are of essence.  Thus, the design and application processes must be conducted meticulously.  Solar Station Inc. provides a full package project management service for utility PPAs from design to application.  With the experience and professionalism of the Solar Station team, the clients can feel safe that the project will be completed in the least possible time and all the financial resources secured as soon as the project starts.  This way, investing into a utility PPA is as safe as using a bank savings account, only with a much higher savings rate.  Additional information can be found at www.solarstationinc.com.