Solar Power Purchase Agreements (PPA) are prevalent structures since governmental entities are not entitled to various state and federal incentives.

Why Municipal Solar Makes Sense:

Municipal entities interested in saving on their power costs often find outright purchase (even when financed by a loan) not the most attractive option for several reasons:

1.   Government bodies, such as municipalities, can't take the 30% federal tax credit, making solar that much more expensive.

2.   Municipalities may not want to assume a large loan. (PSEG does not offer their loan program for large systems).

3.   Other means of financing a solar PV system are more attractive.

Both leasing and power purchase agreements, or “PPA” work better for municipal solar, and   avoid many of the problems of outright purchase.

In a leasing arrangement, municipal entities pay a fixed monthly rate to use a municipal solar system owned by the lessor. This rate is independent of system generation.  Generally a lease will be contracted for 10-20 years.  The lessor, a private company, can take advantage of tax incentives that are unavailable to the municipality.  In New Jersey, the system produces SRECs, but the financial value of these accrue to the lessor.

In a PPA arrangement the municipality pays a predetermined rate per kWh generated.  The PPA provider owns the system and sells the electricity generated to the municipality, generally for 5-25% less than the grid rate.  The PPA provider receives the tax benefits, controls the SRECs, and is responsible for maintenance and insurance.   Terms are usually 15-20 years. 

The following grid compares solar PV purchase, lease, and PPA options.

	Purchase with Loan	Leasing	PPA
System Owner	Municipality	Lessor	Investor
Pricing	Fixed loan payment	Fixed monthly payment	Fixed rate per kWh
Performance Risk?	Yes	Yes	No
Accounting treatment	On balance sheet	Generally off balance sheet	Always off balance sheet
Federal Tax Credit	Not available	Lessor’s Acct	Investor’s Acct
Federal Depreciation	Not available	Lessor’s Acct	Investor’s Acct
NJ Incentives	Ineligible	Lessor’s Acct	Investor’s Acct
SRECs	Yes	Possible	Investor’s Acct
Maintenance	Municipality pays	Municipality generally pays	Investor pays
Insurance	Municipality pays	Municipality pays	Investor generally pays