Saturday, December 15, 2012

Best Way to Finance a Commercial Solar Energy Project

This article examines one of the best choices for businesses when financing a solar energy project.

Many industries are discovering the benefits of installing solar power systems to save money on energy while offering protection to our fragile environment. Solar power has benefitted schools, government and municipal clients, corporations, water districts, housing developments and commercial real estate endeavors, utilities and more. Since switching to a solar powered energy represents a large capital outlay for most businesses, it is important to choose a financing vehicle that allows your business to maximize incentives and rebates while protecting resources and managing risk. Power Purchase Agreements (PPAs) and integrated financing represents one of the best ways to do this.

What is a Power Purchase Agreement?

Technically, a Power Purchase Agreement (PPA) is a contract that defines terms of sale of electricity between a buyer and a seller.  These can last anywhere from five to 20 years and they are subject to regulation as the state and federal level depending on the project site and the nature of the PPA.  In the case of solar power, the provider of the PPA absorbs the costs associated with the project, such as design, construction, O&M and more.  Customers can watch their utility bills fall immediately since they are purchasing clean energy as a substitute for on-the-grid power. The provider receives any rebates and tax incentives associated with the production of clean energy, but these savings are passed on to the customer in the form of lowered bills.

Why is an Integrated PPA the Best Choice?

An integrated PPA occurs when the PPA provider and installer are one and the same. In a standard PPA, the provider is looking to increase return on investment, but the installer is also interested in lowering the costs of design, supply and project build costs.  If the installer and the provider are the same, their interests are joined to provide the highest quality project that will produce an appropriate return on investment. 

What benefits can an integrated PPA offer your business?

Besides the obvious energy savings, an integrated PPA offers commercial businesses significant savings over traditional financing options.  For one thing, they will not experience any increase in energy rates over the life of the project, despite predicted hikes in power costs due to increasing global growth and environmental regulation. As an investment, it is a win-win: if the project does not perform according to predictions, the onus falls upon the PPA provider to absorb the cost of failure. There are no operation or maintenance costs as these are paid for by the PPA provider and not having to finance the cost of a megawatt solar power project up front allows the business owner to use his capital for other investments.  Finally, making the switch to clean energy provides a business with a plethora of marketing tools that can help generate positive PR for his business.

Borrego Solar is a commercial solar power installer in the United States. Please visit their website at

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