Booming growth in today’s solar industry, rising utility rates and concern about sustainable building has led many builders and designers to replace facilities' traditional power with renewable energy like solar power.

Of course it’s good news for the environment and energy independence, but it’s also a boon for builders minding their bottom lines — in a market flooded with rebates and tax incentives, the economics of alternative energy are incredibly enticing. With one important catch.

Going solar is financially smart in the long-term, but to many, the allure dwindles when writing that first check. Financing a clean power plant often means making a substantial financial outlay — and that has detracted many who’d otherwise consider solar energy.

Of course, to make the initial commitment easier, many builders and designers decide to finance their systems through loans and leases. Yet there are still costs to manage and hassles to grapple, like having to screen installers, arrange for construction and power integration, and manage and maintain a system over its lifetime.

What’s wrong with the system? The problem is that most solar companies have relied on selling a product, rather than a service. The upfront payments put building managers in a position of financing decades of power use all at once — and that’s not how energy sales, clean or otherwise, have to be managed.

After all, traditional energy sales are based on consumption. You don’t have to build a power plant to turn on a light bulb! Why should it be any different for renewable energy?

Fears of the costs and complications in setting up systems have brought the solar industry to build new tools for purchasing renewable energy — called power purchase agreements. These PPA’s allow builders and designers to take advantage of renewable energy as quickly, reliably and easily as getting power from the local utility.

In a power purchase agreement, a PPA provider agrees to construct and care for a builder’s energy-producing devices, like solar photovoltaic systems, on their rooftop or outside property. The power produced by the system is then sold back to the builder per kilowatt-hour, at a set rate for a set time — much as with a traditional energy utility.

PPA’s address some of the biggest concerns of facility managers: they eliminate initial capital outlay, remove the risk for owning and operating a system, allow for companies to scale their systems as-needed to offset some or all of their power needs, and allow predictable energy pricing over the long-term – something even their existing power providers can’t provide.

Renewable Energy Options

There are three primary ways to adopt renewable energy — buying a system, leasing one, and arranging a power purchase agreement. Decision makers considering green energy should be well aware of the benefits and concerns in each of these options.

Buying Solar Systems — Purchasing a solar system outright is one way to gain the benefit of a renewable energy facility. But it’s not without drawbacks. You’ll need to first arrange for the upfront capital requirements, assume the risks involved with finding the right system integrator, and manage the design and installation of a system. Payments, if arranged through a loan, are based upon the final system cost – not the amount of energy produced. And then there are ongoing costs – for operating, maintaining and insuring systems for twenty or more years. The sum can be hefty.

Leasing Solar Systems — Companies have also financed renewable energy projects through leases. But a lease only provides the wherewithal to afford a solar facility; leases still require customers to coordinate the installation and secure ongoing maintenance, and do not guarantee energy production over the system’s lifetime. Leasees aren’t required to come up with the initial capital expense of a system, as owners are, but they do assume some installation risk: like finding the right design and installation partners. Customers must also assume a fixed monthly fee for the cost of a system, regardless of how much energy happened to be produced that month. Finally, there are also ongoing costs not covered in the terms of the lease – like operations, maintenance and insurance.

Power Purchasing — Power purchase agreements provide a renewable energy sales model that mimics the way traditional energy is purchased. Like a lease, PPA providers relieve businesses of the responsibility of covering upfront costs. They structure contracts of various lengths and terms. And they also provide tax benefits to purchasers — even those normally exempt institutions like government and nonprofit customers, because the purchase is channeled through a separate entity.

But there are additional benefits with PPA’s that surpass others — like lower pricing and higher installation satisfaction.

That’s because PPA companies make a business of building industry relationships with top-tier banks, system architects and installation partners who provide real benefits to their customers — like volume discounts on equipment, lower cost of materials, and raised ability to pass savings along.

PPA customers assume no installation risks; their provider is charged with designing and installing systems together with their installation partners. And when it comes time for payment, customers pay each month only for the electricity provided to them.

Fears of the costs and complications in setting up systems is a reason why Tioga Energy — along with other solar installers — have found a way to build new tools for purchasing renewable energy. These power purchase agreements (PPA's) allow those planning for facilities' energy needs to take advantage of renewable power as quickly, easily and reliably as getting it from their local utility.

Is a PPA right for your building? Power Purchase Agreements may not be the right choice for everyone. Businesses interested in building equity in their facility or running off-the-grid may choose to opt for owning their own system, regardless of the initial and ongoing financial and management costs. Leases can best appeal to customers seeking more managed pricing, but with a premium on flexibility in negotiating contract terms of varying length and degree. Power purchase agreements, however, are intended to work with the majority of business customers, alleviating most of the hurdles required to adopting solar power — with an emphasis on ease, convenience, reliability and security of long-term energy needs.