Power Purchase Agreements
Research campuses can use power purchase agreements (PPAs), such as energy service agreements, to finance on-site energy projects with little-to-no upfront capital costs.
Examples of how some research campuses have used PPAs are provided below.
PPAs are contracts entered into by a power producer, or provider, and a private entity, or owner, primarily to implement on-site energy installations. The owner, in this case a research campus, is typically looking to reduce their energy consumption or introduce renewable options into their energy mix. For more information, visit the Federal Energy Management Program power purchase agreement website.
The owner provides space to the provider to install the system and purchases energy from them at a pre-determined price, which can escalate over time, for the duration of the contract term. PPAs have become common for solar photovoltaics (PV) and wind power installations.
There are two major benefits for the owner, or campus, upon entering into a PPA:
- The price of their power will be fixed for a period of time
- The system is theirs to keep at the end of the term and renewable energy is generated for free thereafter.
Efficiency Services Agreements
An efficiency services agreement (ESA) is a performance-based approach to financing energy-efficiency projects. An ESA shifts all upfront capital expenses from the campus to the provider/developer. An ESA provider typically engages in an agreement directly with an owner and then subcontracts a developer to design, build and operate the project. The subcontractor is usually a large energy services companies (ESCO), however independent energy-savings insurance products have enabled other contractors to more readily enter into the process as well.
Similar to the shared-savings-model, the owner agrees to make regular payments to the provider over a contracted term, using the savings from reduced energy consumption. Therefore, payments may vary over the billing period according to how much savings is realized that period. Because ESAs are an agreement for service and not a lease, owners are able to treat them as off-balance sheet accounting.
Power Purchase Agreement Examples
University of San Diego (USD) is meeting 15% of its energy needs through a 1.23 megawatt (MW) solar system consisting of 5,000 panels across 11 campus buildings. USD signed a 25-year PPA with AMSOLAR to become the second largest solar energy producer and the 10th largest solar facility in the United States.
Smith College entered into a 20-year PPA with Community Energy Inc. for installation of 130 solar panels; enough power to supply the electrical needs of the Campus Center Cafe. The system will reduce carbon emissions by 238 metric tons, which is the equivalent of planting 215 acres of trees. Community Energy owns and operates the system, charging an installation fee of $240,000.
At 1.1MW, California State University, Fresno's solar system is the largest PV-paneled parking installation at an American university. Made possible through a partnership with the university and Chevron Energy Solutions, the $11.9 million system provides 20% of the university's power and is expected to save more than $13 million in utility costs over 30 years. MMA Renewable Ventures, the system's owner and operator, financed the project through a PPA, with additional financial support provided through a $2.8 million rebate from the California Self-Generation Incentive Program. Read more about this story in the California State University press release.