Page 174 - Alternative Energy Systems in Building Design

150 SOLAR POWER SYSTEM PHYSICS AND TECHNOLOGIES

referred to as third-party ownership contracts, differ from conventional loans in that
they require significant land or property equity that must be tied up for the duration of
the lease. PPAs have the following significant features that make them unique as finan-
cial instruments:

■ They take advantage of federal and state tax incentives, which otherwise may have
no value for public agencies, municipalities, counties, nonprofit organizations, or
businesses that do not have significant profit margins.
■ Properties where renewable-energy systems equipment and materials such as solar
PV power support structures are installed must be leased for the entire duration of
the contract agreement, which may exceed 20 years.
■ Solar power or the renewable-energy system must be connected to the electrical
grid.
■ Power generated by the renewable-energy system must be used primarily by the
owner.
■ Depending on the lease agreement, excess power produced from the power cogen-
eration system is accounted toward the third-party owner.
■ Equity of the leased property must have liquidity value exceeding the value of the
project.

Advantages of PPAs In general, PPAs have the following significant advantages:

■ Projects are financed on equity of properties, such as unused grounds or building
rooftops, which otherwise have no value.
■ Owners are not burdened with intensive project cost.
■ PPAs guarantee owners a hedge against electrical energy escalation costs.
■ Energy cost escalation associated with third-party PPAs have significantly less risk
than grid-purchased electrical energy.
■ The owners assume no responsibility for maintenance and upkeep of the leased
equipment or grounds for the duration of the lease period.
■ On completion of the lease agreement period, owners are offered flexible options
for ownership.
■ All PPAs intrinsically constitute turnkey design-build contracts, which somewhat
relieve the owners from detail technical design.

Disadvantages of PPAs Since PPAs essentially constitute a contractual rather
than an engineering design and procurement agreement, they inherently include a
number of undesirable features that in some instances can neutralize the associated
benefits discussed earlier. Some of the undesirable features associated with PPAs are
as follow:

■ PPA contracts are extremely complex and convoluted. Contract agreements drafted
include legal language and clauses that strongly favor the third-party provider.
■ PPA contracts incorporate stiff penalties for premature contract terminations.