1. Benefit from Federal Investment Tax Credit (ITC)
Your nonprofit can benefit from the 30% ITC. By lowering the cost of the project to the solar developer and its investors, a lower solar electricity price can be offered to the nonprofit.
2. Benefit from accelerated depreciation.
Solar installations can be depreciated over a 5-year period rather than over the expected useful life, which is much longer. The impact of depreciation usually is greater losses for the investors, which then are used to offset other taxable gains. Like the ITC, the host benefits from accelerated depreciation in that it could allow for a lower price per kilowatt-hour of electricity in the PPA.
3. No up-front capital investments for your nonprofit.
Although installed costs are declining, the required initial investment to install a PV system is still significant, even after rebates. The cost of a 1MWp solar system on a middle school, for example, can exceed $2,500,000. Using the third-party PPA model, it is the solar developer and investors that finance and own the system, thus eliminating the need for the school district to invest its own capital into the project.
4. Locked electricity prices for 20+ years.
Power purchase agreements are structured with a locked price per kilowatt-hour of electricity that is adjusted annually with a pre-determined inflation rate, also known as escalator, for the length of the contract. The kWh price is most likely competitive with the utility rates that a school is currently paying.
5. Operation & maintenance responsibility handled by system owner.
The system owner operates and maintains the solar system, removing this burden from the school district. This includes replacing the system’s inverters should they fail after the standard 10-year warranty but prior to the end of the PPA term.
6. Buyout option provides ownership potential.
Often PPAs are structured so that the school district has the option to buy the system at various points during the life of the PPA. The first option to buy the system takes place sometime after year 6, because changing ownership before then causes significant tax penalties. The buyout price is typically calculated as the greater of fair market value of the solar system or the discounted cashflow of the remaining payments in the PPA term.
7. Risk avoidance.
The risk of electricity production is borne by the PPA provider. The school district only is obligated to purchase what the system produces. Additionally, the PPA provider commonly guarantees a certain level of minimum production of electricity, compensating the school district for any shortfall.