All-cash means you pay for and own your clean energy system. In a PPA the clean energy system is bought and owned by a third-party who sells you back energy created from that system at a fixed rate over a set term.
🤝 Power Purchase Agreement (PPA)
A PPA, or Power Purchase Agreement, is a common financing structure for clean energy systems where a 3rd party installs, owns and maintains the energy system at your building, and you (the buyer) enter into an agreement with the owner to use electricity generated by that system at a discounted $/kWh rate over a fixed term.
A PPA allows the buyer to receive stable and often lower-cost electricity with no upfront cost. While, the owner of the system takes advantage of tax credits and receives income from the sale of electricity. The owner is also responsible for the system’s performance, operations and maintenance (O&M). This can be an advantage for buyers who want clean energy's savings and reliability, but do not have operational and maintenance experience or upfront cash to pay for it. Station A’s analysis can estimate what your new $/kWh PPA rate would be for your site, and compare it to your estimated current cost of electricity to understand your savings.
A project must be located in a state or jurisdiction where third-party ownership of energy generation equipment is allowed to be eligible for a PPA. Some state regulations limit or restrict non-utility providers in regulated markets from selling electric power. PPA terms range from 10 to 25+ years, depending on your preference — and ending the term early will result in a termination fee (which is pre-determined during contract negotiations). This means that PPAs are better suited for long-term leases or owner-occupied sites. PPAs typically generate lower lifetime savings than an all-cash purchase.
💡 PPA-Permitting States: As of August 2022, the states that allow PPAs are: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Illinois, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Virginia, South Carolina, Texas, Utah, Vermont, and Washington D.C.
Purchasing a system outright requires upfront capital but can generate a higher return over the life of a system (subject to the cost of capital). You also fully own its environmental attributes and tax benefits.
All-Cash purchases allow you to own the system, which means you collect all federal, state, and local incentives for the project, including the ITC. Your project will also generate RECs, which you can retire to claim additionality, or you can sell them for additional revenue either in a private deal or in a regulated REC market (offered in some states, such as Illinois). Since you won’t need to pay interest on a loan, All-Cash purchases typically generate the highest lifetime project savings out of any financing option.
All-Cash purchases require an investment of upfront capital. You will see the return on your investment after a certain amount of years, known as the payback period (typically, a good payback period is under 10 years). Station A’s analysis can estimate your payback period for your site and generate estimated lifetime savings for an all-cash purchase. As the system owner, you are also responsible for the system’s O&M, typically outsourced to a 3rd party provider.
Other Financing Options
🏦 Traditional Loan
A loan may work for you if you don't qualify for a PPA. A traditional loan will absorb a chunk of your available loan capacity, which your business may need for other capital investments.
💳 Capital Lease
This is usually the fastest way to purchase a system, but with this option, it can be hard to save money from day one. With a capital lease, you are able to capitalize on all the tax and depreciation benefits that come with solar. However, the monthly payments are typically higher than other options.