An Overview of Solar Power Procurement Options
By Hillary Dobos and Emily Artale
Many of our clients have shown interest in pursuing solar energy but are quickly overwhelmed by the myriad of solar power procurement options available to them.
This blog provides a brief overview of some of the options for procuring solar power. As different organizations may have diverse goals for solar procurement, finding the “right” option(s) will also vary. We do not specifically endorse any one method over the other, but rather provide some basic information to answer some of the most common questions.
Solar Procurement Options
Renewable Energy Credits (also known as RECs, Renewable Energy Certificates or greentags)
A grid-tied renewable electricity generator, such as a solar array, produces two distinct products: 1) electricity and 2) a package of environmental benefits resulting from not generating the same electricity and emissions from a conventional natural gas or coal-fired power plant. These environmental benefits are collectively known as Renewable Energy Credits, or RECs. RECs are sold, traded, or bartered on a market or through bilateral transaction. RECs are used by entities as a way to reduce their environmental footprint and help fund renewable energy development. They allow organizations to claim that the electric power they are using comes from renewable sources and apply the renewable attributes to any facility.
- Unique benefits: Simple transactions, flexible market in that you can select the location, resource type, and vintage of RECs, you can claim environmental benefits if RECs are retired, and one time purchases are possible, unlike other options where long-term contracts are usually required.
- Things to consider: RECs do not hedge against increasing energy costs, they do not always come from a local project, and the environmental attributes can be hard to explain to constituents.
For more on RECs see the following blog “Renewable Energy Credits (RECs): A Review of the Basics and Questions to Ask before Utilizing RECs as a Way to Meet Renewable Energy Goals.”
Participate in a Community Solar Garden
Solar gardens consist of a large photovoltaic array on a large parcel of land. Individuals or businesses can buy a number of solar panels from a solar garden array or purchase electricity generated by a specified number of solar panels and receive credit, as utility incentives, on their electricity bills for the energy production that they own. Solar gardens make sense for entities that are unable or not prepared to host or own a system on their building’s roof or adjacent to their property and do not want to be responsible for the maintenance of a system.
- Unique benefits: Operation and maintenance is administered by a third party, solar is ideally located for maximum production output and is usually from a local resource, and the owner usually has the ability to transfer renewable energy to different premise locations. In addition, potentially save money compared to regular electricity costs and provides a fixed cost of electricity over the life of the system helping hedge against increased energy costs.
- Things to consider: Community solar gardens are not widely available, participating entity might not be able to claim environmental if RECs are not retained, and participating in a solar garden can be a complex transaction.
For more information on Solar Gardens see the following blog “Increasing Transparency of the solar Garden Process: The Top 4 Questions You Should Ask When Considering Participation in a Solar Garden.”
An organization that is able to install solar on their own facilities can take advantage of several unique financing options including (but not limited to): leasing solar panels, Power Purchase Agreements, and buying the system outright.
- Unique benefits: On-site solar is visible and tangible and therefore easily communicated to constituents, supports local jobs, usually reduces demand charges, sometimes increases property value, and typically provides a fixed price for electricity over the life of the system hedging against increased energy costs.
- Things to consider: On-site solar can require more upfront planning and project management then other solar options. Other considerations include on-site maintenance of equipment; energy production is limited by location and shape of building(s); and many times substantial upfront capital is needed.
Own the system
Many entities decide to purchase their systems outright through self or third-party financing.
- Some additional unique benefits: Some host entities can benefit from the cash rebates, Federal Investment Tax credits, State Tax Credits and other incentives (including balance sheet benefits such as depreciable asset on the books) available for installing solar (see DSIRE website for a list of incentives, rebates, etc.).
- Additional considerations: Maintenance requirements will fall on the host entity. Please note that owning a system outright can be very legally exhausting for many public and private sector entities that must consider indemnification laws, insurance requirements, and for some public entities TABOR laws before interconnecting to the grid.
Power Purchase Agreements (PPAs)
In a PPA a third party project developer (usually called a solar services provider) coordinates the building and maintenance of an entities on-site system. The entity, in return, purchases only the power that is produced from the system. This model greatly simplifies the process of solar by having the experienced solar service provider deal with complex design and permitting processes, benefit from tax credits (something the public sector and some private entities do not benefit from) and take on some of the system performance risks. In addition, little or no upfront capital costs is needed because the entity pays only for a stable, and sometimes lower cost of electricity, then would be paid to their utility. Power purchase agreements are typically for large centralized solar generation stations that provide energy directly to a utility.
- Some additional unique benefits: No upfront capital costs are needed, projects are sometimes cash flow positive on day one, long-term energy costs are known, and solar service providers are incentivized to maintain panels.
- Additional considerations: Long term contracts are usually required and if you sell your property before the lease is up you might have to pay a fine or removal fee.
A solar lease is very similar to a PPA except for a very important difference that with a solar lease you rent the equipment, while with a PPA you are buying electricity. Therefore, even when the array is producing less due to weather or maintenance issues the entity pays the same (or predictably increasing) amount for the equipment.
- Some additional unique benefits: Very predictable cost structure.
- Additional considerations: The host might be required to do some of the maintenance of the equipment. Long term contracts are usually required and if you sell your property before the lease is up you might have to pay out the remaining lease payments.
Before moving forward we recommend that you do the following before further pursuing solar:
- Understand your motivations for wanting to pursue solar energy. This will directly affect which option you pursue.
- Understand your budget and whether or not financing is an option.
- Take a look at your buildings solar potential. The National Renewable Energy Laboratory provides several free calculators (PVWatts Calculator and System Advisor Model) that allow you to estimate the energy production and cost of energy for installing a PV system.
- Research solar power procurement options available to your location. See EPAs Green Power Locator and/or the Solar Energy Industries Association database for a list of providers.
- Contact us at email@example.com or firstname.lastname@example.org for a more thorough review of each option and the resulting costs/savings to your community/company.
Emily Artale is Principal and Owner at Lotus Engineering and Sustainability, LLC. She has been working in the industry for nearly a decade and she has a background in energy management, sustainability planning, and water quality. Emily helps teams develop action-oriented solutions that will improve efficiency and integrate sustainability into current processes. She received her undergraduate and graduate degrees in environmental engineering from the University of Colorado at Boulder. She is a Colorado native and spends most of her time outdoors with her family.
Hillary Dobos is Principal and Owner of Merrill Group, LLC. Hillary brings both expertise and creative thinking to working with clients which she draws from her experience as a consultant advising public and private clients throughout the United States, as well as the one tasked with embedding sustainability throughout a 25,000+ person organization (Colorado State Government). Hillary earned her B.A. in Art History and Economics from Bowdoin College in Maine and her MBA from the University of Colorado-Boulder. Hillary was born and raised in Denver, Colorado, where she currently enjoys life with her husband, son, and moderately trained canine, Mr. Smiles.
Disclaimer: The information presented above is based on the opinions and experience of the authors. The authors are not liable for any errors or omissions in this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.