Solar PV Project Financing: Regulatory and Legislative Challenges for Third-Party PPA System Owners

Residential and commercial end users of electricity who want to generate electricity using on-site solar photovoltaic (PV) systems face challenging initial and O&M costs. The third-party ownership power purchase agreement (PPA) finance model addresses these and other challenges. It allows developers to build and own PV systems on customers' properties and sell power back to customers. However, third-party electricity sales commonly face five regulatory challenges. The first three challenges involve legislative or regulatory definitions of electric utilities, power generation equipment, and providers of electric services. These definitions may compel third-party owners of solar PV systems to comply with regulations that may be cost prohibitive. Third-party owners face an additional challenge if they may not net meter, a practice that provides significant financial incentive to owning solar PV systems. Finally, municipalities and cooperatives worry about the regulatory implications of allowing an entity to sell electricity within their service territories. This paper summarizes these challenges, when they occur, and how they have been addressed in five states. This paper also presents alternative to the third-party ownership PPA finance model, including solar leases, contractual intermediaries, standardized contract language, federal investment tax credits, clean renewable energy bonds, and waived monopoly powers.