Solar energy has become increasingly accessible to many over the years with falling solar panel costs and lucrative tax incentives playing a major part. However, not everyone has sufficient tax appetite to monetize the tax incentives. In response to this challenge, third-party ownership structures have developed to monetize these tax incentives, making solar systems affordable to more property owners.
There are a few different third-party ownership structures, but some of the most common are: power purchase agreements (PPAs), operating leases, and energy service agreements (ESAs).
Power Purchase Agreement (PPA)
A PPA is an option that allows the property owner to purchase power generated by the solar system over a certain price over a set number of years. The PPA provider owns the system and covers the costs of installing the solar system on the customer’s property. The PPA provider is also responsible for the system’s maintenance throughout the PPA term. PPA terms typically range from 15-25 years.
Operating Lease & Energy Service Agreement (ESA)
An operating lease is another common third-party financing structure. Although similar to a PPA, under an operating lease the property owner rents the solar energy generating equipment rather than purchasing the actual power produced at a per kWh price. Unlike a PPA, the property owner is responsible for operations and maintenance of the system throughout the term.
An ESA is very similar to an operating lease although legally distinct. Instead of renting the solar equipment, the property owner pays for the “service” of energy-saving solar power. In both cases, the financing is off-balance sheet.
Third-party ownership has become quite common in the solar energy industry. By giving property owners access to renewable energy through affordable financing, many are able to save money from utility bills even if they cannot monetize the tax incentives.
BlueFlame offers third-party ownership financing structures to business owners, as well as other financing options for renewable energy projects. Schedule a free consultation with us to learn more.