New models for financing commercial solar, wind projects

Solar on a commercial roofDuring a Feb. 12 webcast hosted by the Environmental Protection Agency’s (EPA’s) Green Power Partnership program Geronimo Energy discussed some new, unique ways to finance renewable energy purchases for commercial, municipal and other, large facilities. The company discussed a number of innovations, including “virtual” and “pre-paid” power purchase agreements.

The webcast, “Market Outlook and Innovations in Wind and Solar Power”, focussed on what the state of the industries look like today and how wind and solar are able to compete with natural gas, today and tomorrow. For instance, while natural gas is currently available at low prices, it’s projected to go back up within about 5 years, according to Blake Nixon, president of Minnesota-based Geronimo Energy. Geronimo Energy has a number of solar and wind projects installed and underway and has developed some interesting ways to market that energy.

First, regarding natural gas. The last time it was supposed to be low-cost forever, according to Nixon, was 1998. Then it saw dramatic upswings in price in 2001, 2004, 2006 and 2008. “You really can’t rely on natural gas to be predictable the long source provider of energy,” he said. Fracking has brought on tremendous amount of oversupply in 2012, reducing the cost of natural gas. But as demand for natural gas becomes stronger in the U.S. and internationally, that’s likely to change. Meanwhile the low costs of natural gas have forced renewable energy prices lower as well.

Still, to help companies and municipalities go renewable, Geronimo is offering companies and municipalities access to more financing models to make it easier to go renewable, including virtual and pre-paid PPAs. While a direct PPA allows a company, homeowner or town to enjoy the benefits of a solar system on their roof or land, a virtual PPA offers almost the same benefits, Nixon said. Both allow the end-purchaser to lock in low energy rates for the length of the contract. But, on the direct purchase side, users don’t have to pay some of the additional costs like transmission, distribution, administration, and other add-on costs. The virtual PPA allows a company like Geronimo to develop the project where it makes the most sense—like as part of a larger wind or solar farm. “The virtual purchase avoids dealing with the complications of those transmission issues and it doesn't cost any operational changes in your organization, which is obviously very nice for clear reasons. But it doesn't displace that costs that come on top of the wholesale power retail rate,” he said.

Under the virtual option, a payment rate for the power produced is set by the purchaser and Geronimo. The customer gets the benefit of all the renewable energy credits produced. On a periodic basis, any discrepancies between the cost of grid-based electricity and the price of power produced by the contracted units is made up for by Geronimo when the price is higher than the agreement and paid by the customer when the price is lower than expected.

Geronimo also developed a pre-paid PPA structure. “This is very popular as a discussion topic amongst municipal power buyers,” Nixon said. It’s also popular with other entities that have a bonding authority with low cost of capital that aren’t able to efficiently monetize tax credits. “The way it works is the buyer pays for roughly two-thirds of the expected [lifetime] output from the renewable facility at a very substantial discount. Literally 50 percent of the price of the power that would be otherwise offered to them,” he said. All of the facility’s production goes to the purchaser and future payments are tied to the actual overage production and tied to a different rate. In such cases it reduces the total cost of the PPA by up to 30 percent because of the low cost of capital and the ability to monetize the tax benefits.

In all, they represent some new options to industries and municipalities that have considered going solar or wind, but haven’t been able to finance it or find another fit. 

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