Kaita Albanese, Bard MBA in Sustainability Student
If you are considering ways to finance a project with minimal up-front costs, a Power Purchase Agreement (PPA) might be the right option.
The model for a PPA, or power purchase agreement, comes from the solar industry. Under a PPA, the micro hydro installations would be owned by third party investors rather than the landowner during a specified term, perhaps 20 years. Ideally, third party investors take on all of the initial costs—from feasibility analysis to permitting to system purchase and installation. They would also be responsible for maintenance.
In exchange, the landowner would agree to purchase all of the power produced by the micro hydro project at a set charge per kWh (kilowatt hour).
The idea is that this charge, for solar, usually in the range of 14-17 cents per kWh, is less than that average cost per kWh that the consumer is paying to their utility, so there would be a benefit to the landowner. At this price, solar power purchase agreements have mainly been common in states like New York, where there are high electricity prices.
At the end of the term, the landowner would be offered the opportunity to purchase the micro hydro installation at a set, low price. PPA’s are attractive to investors largely because of the 30% federal tax credit for new renewable energy installations. Should this tax credit disappear, it will be harder to attract third party investors to the PPA model.
To our knowledge, there are no micro hydro installations that have been installed in New York recently under a PPA. However, once this model has been pioneered for micro hydro, it could potentially support the rapid spread of micro hydropower in the state, in the same way that “zero money down” PPA model facilitated an explosion in roof-top solar in the period 2010-2015.
Here are two sample residential contracts for a solar PPA from the Solar Energy Industries Association (SEIA). These sample contracts were initially developed by the Solar Access to Public Capital (SAPC) working group led by the National Renewable Energy Laboratory, and have been endorsed and adapted by SEIA:
Residential PPA Agreement – Aggregated Business Model (Under a PPA agreement, consumers make monthly payments based on how much electricity is produced by the system. This PPA agreement is for vertically integrated companies who finance and install systems)
Residential PPA Agreement – Disaggregated Business Model (Under a PPA agreement, consumers make monthly payments based on how much electricity is produced by the system. This PPA agreement is for companies that work with a network of third-party installation partners or financiers.)