Financing
A wide variety of options are available for financing a PV system depending on a multitude of factors including your country of residence, tax status, and the size of the installation. Generally speaking, methods of financing fall into one of three broad categories: Balance Sheet Finance, Leasing or Power Purchase Agreements (PPA).
Balance Sheet Finance
With this method, the owner of the land or building where the installation is to be placed (the “site host”), directly owns the installation. This has been the most historically used model to date and allows the site host to capture tax benefits, sell any accompanying Renewable Energy Credits (RECs) on the open market and retain control of the installation past the 20 year mark typically used in other financial agreements. However, it does require heavy upfront costs to fund the systems installation.
Leasing
Leasing is a form of third-party financing in which a leasing company owns the PV system and leases it to the site host over a period of years. The site host makes regular payments to the company for the use of the plant and benefits from the power generated by the system that offsets power purchased from a utility. Of course, the cost savings received by the site host are higher than the lease payments made. In this way, a lease overcomes the barriers of PV’s high up-front cost associated with outright ownership (see Balance Sheet Finance above).
Power Purchase Agreement
In a Power Purchase Agreement (PPA), the site host neither owns nor leases a PV system, but agrees to buy the electricity generated by the system for a specific time frame. Essentially, the site host receives the benefits of the system (cheaper power) without having to buy all the equipment to get it (modules, inverters, etc.). In this case, the goal of all parties is to set the price of electricity lower than what would have otherwise been paid to the utility. Many PPAs also include an “early buyout option” that allows the site host to purchase the system at a pre-arranged price or fair market value after a number of years.
For a thorough review of the options available see “Financing Non-Residential Photovoltaic Projects: Options and Implications” by Mark Bolinger of Lawrence Berkeley National Laboratory.
