Solar Power Purchase Agreements (SPPAs)
An SPPA is an alternative to financing and owning a solar system. It offers the nonprofit the opportunity to install solar power without paying upfront costs or worrying about system operation and maintenance. Sometimes referred to as a “third party” ownership model, this approach allows the nonprofit to focus on its core mission, while solar experts manage the energy system.
A nonprofit or tax-exempt entity enters into an SPPA by contracting with a solar services provider that is responsible for financing, designing, installing, monitoring, and maintaining the project. The solar service provider in turn engages financing partners that may fund the construction of the solar system as well as provide a long-term loan to the project. The investor or group of investors provides equity financing and receives the federal and state tax incentives (called “tax equity” investing). The nonprofit then buys the electricity the system generates from the financing partner, making payments for the electricity consumed, just as it now pays the utility company.
Unlike paying for electricity from a utility company, however, the cost of energy is determined in advance before the system is installed, so the nonprofit can predict and budget for power costs over the life of the SPPA contract — usually 15 to 25 years. SPPA contracts avoid unexpected price fluctuations because the cost of the fuel is known: sunshine is always free. On the other hand, with the permission of regulators, a utility may increases electricity rates at any time. Many believe that utilities will raise electricity rates significantly in coming years as climate change legislation is adopted because most electricity in the U.S. is produced from carbon-intensive fuels, such as coal and natural gas.
SPPA contracts typically also give a nonprofit the option to purchase the system prior to the end of the SPPA contract down the road if funding becomes available and the nonprofit wants to further reduce energy costs. This option most often presents itself at year six, after the project investors have exhausted the tax benefits and accelerated equipment depreciation associated with owning the system. At this point a nonprofit may be able to buy the system at the “fair market value,” which is determined by a process approved by the IRS. The early purchase of a solar system can eliminate any further escalation in cost of power, and requires only the funding of ongoing operating and maintenance expenses.
Renewable Social Benefit Funds (RSB Funds), is a solar service provider that works only with nonprofits and tax-exempt entities. Our focus on this sector allows us to bring together socially responsible lenders, investors, and solar equipment providers who are committed to providing nonprofits with clean, sustainable energy and immediate savings over current energy costs that can be used to fund core programs.
Our investors, while of course looking to earn a fair profit, recognize that an investment in a solar system for a nonprofit provides both a financial and social return on investment. This allows us to attract capital at rates more favorable than those available to for-profit SPPA’s.
We work with only the industry’s best equipment and installers and cultivate relationships with them that enable us to obtain the best possible pricing for our customers. RSB’s project development fees are also 25-50% below those of our solar service competitors, and our fees are paid for by the project investors, not our nonprofit clients.
We also recognize the benefits of a nonprofit ultimately owning its own solar system. While all of our SPPA’s are designed to provide significant financial benefits to a nonprofit over their full term, we offer extremely competitive pre-term purchase options. For those who can afford to pay cash this is an easy decision, as full ownership significantly increases the savings over buying electricity from a third party. For those for whom cash is not an option, we provide a number of financing options to help, from assisting with simple loans to tax-exempt leasing programs. In fact our unique SPPA structure even allows the system owner to donate the system to the nonprofit, which is an entirely new practice in the solar sector.
Incentives and SPPAs are bringing solar power within reach for energy customers of all types. RSB Funds is dedicated to ensuring the nonprofit sector realizes the maximum benefits from solar power, as a truly renewable source of funding that continues to support an organization’s mission for years to come.
Rate-Indexed PPAs provide another PPA option. Click here to learn more.