You Down with PPA?
by OregonDOT
The “green revolution” has pushed some amazing technological innovation, but did you realize that it’s having a similar effect on the world of finance? The challenge of high first-costs and slow, but steady, payback found in renewable energy and efficiency programs means that many common investment strategies just don’t work.
But where there’s a market, there’s a way. Imagine you’d like to install some solar panels on your house, but you just can’t justify the up-front costs. You know that over ten or fifteen years you’ll make your money back, and with the threat of rising energy costs, it just might be sooner. But the fact is, you may not live in your house that long and even though you love new technology, you just can’t take that risk.
Businesses face these same challenges, but are even more restricted by shareholder expectations and internal policies that dictate short payback periods. How can they transition to renewables and still meet their quarterly numbers? Find a better business model.
What if, instead of laying out all of that capital themselves, a business could find someone else to build and maintain the panels, and just purchase the resulting electricity. Instead of buying renewable assets, they could buy the service of renewable energy. This model is the basis for the evolving finance mechanism known as a Power Purchase Agreement (PPA), and it’s making a company called Sun Edison a lot of money.
PPA’s are springing up all over the place in the renewable energy market, as providers install systems to capture the revenue from the power and the environmental assets like Renewable Energy Certificates (RECs) and carbon offsets. As they increase access and demand for renewable energy, production of solar panels and wind turbines will become less expensive, giving the rest of us the chance to get on board. And all it took was a little creativity to look at old business models in a new way.
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