Getting a power purchase agreement (PPA) signed for a solar project requires juggling numerous tasks–all of them moving targets, says Chris Lord, instructor of HeatSpring’s Solar Executive MBA Training course.
It’s not easy to maneuver through this process and rope all the pieces into place, but Lord can help. As managing director of CapIron, Inc., Lord helps clients plan, structure and close financing deals involving renewable energy.
In his Solar Executive MBA course, he focuses on site location and control, queue position for interconnecting with utilities, zoning and titles, and feasibility and facility studies. Students learn about the many costs that developers must manage simultaneously to meet project goals, says Lord.
The Importance of the Power Purchase Agreement
In a PPA, a third-party developer owns, operates, and maintains the photovoltaic (PV) system while a host customer purchases the system’s electric output from the developer for a pre-determined period and agrees to site the system on his or her property. Getting these deals signed is an essential part of the solar development process.
If developers are thinking ahead, one of their first tasks is to ensure the project has a queue position with the utility or regional transmission organization (RTO), says Lord.
But if you move too quickly or too slowly, you may lose money and even sink the project, he says. That’s where the juggling comes in.
The Ins and Outs of Interconnecting to the Utility or RTO
Getting a “queue position” refers to the process of applying to the local utility or RTO to interconnect a solar project to the grid. In some cases, the utility may already have many applicants in the queue, leaving you with a long wait before you get a response. That can slow or undermine a deal because buyers, liking certainty, prefer to negotiate with people already in the queue.
But the problem, says Lord, is that developers sometimes have to wait up to two years in the queue before they can initiate the feasibility and facility studies. This yields uncertainty for buyers and developers alike.
In addition, once you move to the front of the queue, you must do the feasibility and facility studies, both of which will cost you as a developer. You may also need to spend money on site maintenance at this time–before you have a PPA in place.
Why the Site Location Matters
The location of the site also has a huge effect on a developer’s likelihood of success and ability to interconnect in a cost-effective manner. If you pick a site in a location far from transmission lines–lines that can get your power to more than one market–you’re stuck with the local utility or other load-serving entities, says Lord.
If other people are applying to be on the same node as your project, their success or failure could change the variables–whether you can interconnect your project or how much interconnection will cost.
The cost of interconnection is also variable. Your location changes the cost of interconnection. Other factors affecting cost include the equipment you use and how much capacity is already in use. In some cases, the substation is already at capacity, in which case you may have to invest in substation upgrades, explains Lord.
Juggling to Certainty
It all amounts to a lot of uncertainty and juggling, but when all the pieces falls into place, it’s worth the effort, says Lord.
“Getting site control and interconnection queue position and settling preliminary environmental, zoning and title issues for a utility-scale project is a great way to create value,” Lord says. “But it all comes together only when you get the PPA because that’s the hardest component of the puzzle right now. Finding a buyer for the project’s power is what drives all the economics.”