Summary

• Solar PPAs (Power Purchase Agreements) do not require any capital spend
• PPAs can save 10%-50% compared to what you’re currently paying for electricity
• Avoid time and cost of maintenance – taken care of by solar provider
• Consider timeline – most PPAs have 15-25 year terms
• SkyQuotes from OnSwitch are a fast and accurate way to see how much you can save with a PPA for your building(s)

INTRODUCTION

More and more companies understand the value of renewable energy and solar – for the noteworthy energy savings, future-proofing against electric rate hikes, as well as the carbon reduction benefits. Case in point: The RE100 group is celebrating 10 years of leadership with more than 400 leading companies committing to using 100% renewable energy.

So why don’t more commercial buildings have solar on their roofs or parking lots? Despite continued strong industry growth, the most common barrier to on-site solar is often the company’s capital budgeting process – which are constrained by annual planning cycles and competition for limited capital. Solar projects compete for internal capital against HVAC system replacements, new roofs, and backup generators, for example.

Enter the Power Purchase Agreement (PPA). The PPA solves many hurdles as a low-risk, simpler mechanism to contract for on-site solar. Simply put, a PPA allows building owners and energy users to buy the energy produced by the solar system on the roof or carport. The monthly energy payment often saves 10%-50% compared to their existing utility electric consumption costs. Customers don’t spend any capital and don’t have any responsibility to own or maintain the system during its 25+ year life.

Commercial and industrial (C&I) energy users are often unaware of the PPA structure despite its established track record and large global financing companies backing these contracts. Many large energy users such as Target, Amazon, and Lineage Logistics use PPAs to grow their on-site rooftop solar programs and satisfy their increasing energy usage (Solar Means Business 2024 report).

Purchasing structure	Advantages	Considerations
Power Purchase Agreement (PPA)	Annual savings of 10%-50%+ starting Year 1 Skip capital budget requirements, enabling solar programs to scale faster Save resources on overseeing construction and operations	Long-term commitment (10-25 years) Most attractive in these states: CA, NJ, IL, MD, PA, AZ, NY, MA
Capital Purchase	Achieve paybacks of 3-5 years in major solar markets (20%-33% ROI) Gain free solar electricity for 20-22 years after system reaches break-even Leverage 30%-60% investment tax credit Great option for tenants with roof control and shorter lease terms than a PPA can accommodate (e.g., <10 years)	Responsible for maintenance of a 25+ year system (or hire a service provider) Subject to capital budget process Need familiarity to claim tax credits and some state/utility incentives

HOW DOES A PPA WORK?

Our C&I customers have a wide range of knowledge about solar PPAs . Here are some of the popular questions energy users have for OnSwitch:

What is the basic structure of the agreement? An energy user or building owner (called the off-taker) agrees to purchase solar electricity from the provider of the onsite solar system for an agreed upon rate, usually structured as X cents per kilowatt-hour, for a term of usually 15-25 years. The solar provider is usually a financing & asset management company that owns, operates, and maintains the system for the duration of the contract term.

Am I protected if the system generates less energy than anticipated? The energy user only pays the pre-established price per kilowatt-hour for whatever energy the solar system generates – ff the if it produces less solar energy than expected, due to weather or other operational factors, then the energy user pays less. If it produces more, then the energy user still pays the established price which is still a discount to their utility electric rate. If the system generates more energy than the building uses during certain periods of the day, it will export energy to the utility grid. Utilities vary in how much they compensate energy users for any surplus energy exported to the grid.

How are renewable energy credits (RECs) handled? RECs from solar are environmental attributes that represent CO2 reductions and have a financial value. They can be sold & purchased. In states like Illinois, New Jersey, and Maryland, solar renewable energy credits (SRECs) can play a significant role in improving the ROI of solar projects. This is driven by state policies promoting renewable energy usage.

What happens to the solar system at the end of the agreement term? At the end of the term, the solar provideris generally required to remove the system and restore the property to its original condition. There may include extension options or the parties can agree to negotiate a new PPA price and term. Since solar projects can operate for 40+ years with proper maintenance and equipment refreshes, the solar provider will likely be motivated to continue operating the system for as long as possible to continue receiving revenue from the energy.

Prior to the end of the term, the energy user usually has flexibility to terminate the contract, subject to a termination payment schedule that declines over the life of the project. This way the energy user preserves flexibility to sell or remodel the building, exit the site, or cease operations.

What is the role of the Solar Provider? The solar provider brings expertise, resources, and a financial partnership to help de-risk and leverage all benefits of the solar project to offer the PPA price that will deliver savings to the energy user. A good solar provider should have a strong track record and be able to have a good working relationship for the duration of the PPA term length. The provider will monetize the tax credits, leverage construction financing, and maintain and operate the system to perform optimally over its life.

What Investment Tax Credits (ITC) does my project qualify for? U.S. solar projects are eligible for federal tax credits ranging from 30% to 50% or higher, depending on criteria established by the IRS. The level of credits is determined by factors such as paying prevailing wage rates, being located geographically in an Energy Community, or including domestic content materials. IRS guidelines are updated periodically and can require some interpretation – in a PPA agreement the solar provider takes responsibility for the tax credits and so the energy user doesn’t need to dive into details of the tax treatment. Additional incentives are available at the state or utility level. Solar can also help support compliance with local regulatory requirements such as in Southern California or New York City.

WHY USE A PPA TO FINANCE THE PROJECT IF WE HAVE CAPITAL AVAILABLE?

Many of our customers appreciate the simplicity and savings of the PPA, especially when it enables them to do more projects faster. Rather than compete with other capital projects for a limited budget, they can continuously execute projects with no budget limitations and realize savings immediately. With the added benefit of a third party solar provider taking on the workload for operating the asset, monetizing the tax credits, and facilitating the incentives, it becomes clear why PPAs have become the preferred option for large energy users.

These benefits make the PPA by far the most popular option for on-site solar power, including 80% of OnSwitch customers. Our customers range from large Fortune 500 corporations to small and medium privately owned companies.

WILL A SOLAR PPA WORK AT MY BUSINESS LOCATION?

A Power Purchase Agreement will offer lucrative savings depending on the following:

• Available area of the roof or parking lot
• How much energy is used by the building
• Where the building is located

OnSwitch offers PPAs that deliver savings and make financial sense with:

• Roof sizes greater than 20,000 square feet
• Facilities that have sufficiently high energy usage, including HVAC, refrigeration, or other industrial equipment
• Are in a solar-friendly state

A solar-friendly state has a combination of market characteristics that include:

• Utility programs supporting solar, such as net metering and clear interconnection processes
• Relatively high or increasing electric rates
• Incentives and tax credits

OnSwitch can offer C&I PPAs with compelling savings to customers in the following states: CA, NJ, IL, MD, PA, AZ, NY, and MA.

SEE WHAT SAVINGS YOU COULD ACHIEVE WITH A PPA

OnSwitch can quickly help you understand what savings your company can achieve with solar through our custom SkyQuote. Our SkyQuotes are accurate, contract-ready proposals that include:

• Custom solar layout for your company location – roof and carport systems
• PPA and Capital Purchase numbers – full cost and savings details for both options
• Technical details and assumptions & exclusions
• A dedicated OnSwitch Account Manager to answer questions and see if solar can help meet your company’s goals

We can combine multiple SkyQuotes into a SkyPlanner portfolio for easy comparison and ranking between different projects. This is valuable for companies curious about how best to start or continue their on-site solar program.

By requesting a SkyQuote or SkyPlanner from OnSwitch, you will:

1. Save weeks or months in the quoting process
2. Identify which locations will be best for solar to help your company achieve its goals
3. Generate specific, custom business cases, which you can then share with your leadership and other stakeholders

Here are some examples of PPA prices from a recent SkyQuote. The SkyQuote enables you to quickly see the 25-year and 15-year PPA savings and access full Financial Details at the click of a button.

Have questions? Want a SkyQuote for your company? Shoot us an email!
info@onswitchenergy.com