Power Purchase Agreements
To encourage the installation of fuel cells for stationary power, fuel cell manufacturers such as Bloom Energy and FuelCell Energy, offer an innovative financing mechanism called a Power Purchase Agreement (PPA). A PPA is a legal contract between an electricity generator and a consumer. Under a PPA, there is no upfront capital investment required by a consumer. Instead, a consumer purchases the electricity generated by a fuel cell system, while the manufacturer or third-party installer assumes the costs for operation and maintenance. In some cases, high grade heat generated from the fuel cell is also sold to the customer under a PPA. A typical PPA allows customers to lock in favorable electricity rates for a period of 10-20 years, with added savings realized in improved efficiency and carbon reduction over time.
Since a PPA clearly defines the output of generating assets and the credit of its associated revenue streams, it can be used by the energy provider to raise nonrecourse (i.e. provider assumes the equipment performance risks) financing from a bank or other financing counterparty.
A more detailed explanation can be found on page 16 of the Business Case for Fuel Cells 2013: Reliability, Resiliency & Savings.Bloom Energy
Under Bloom Electrons™, companies agree to purchase the electricity from a fuel cell installed on-site for a minimum of 10 years. The introduction of this PPA has removed a critical obstacle to purchasing the equipment, and has encouraged the sale of Bloom Boxes to companies across the U.S. According to Bloom, the PPA can save customers up to 20 percent in electricity costs.
Bloom also created a new leasing program with Bank of America Merrill Lynch for business customers to finance Bloom Energy projects at customer facilities. The program streamlines customer deployment of Bloom Energy Servers and eliminates the need for an upfront capital investment.
FuelCell Energy works with third party companies to arrange PPAs. Recently, the Sonoma County Water Agency in California entered into an agreement with renewable energy producer OHR Biostar LLC, which would provide the County with electricity from a 1.4 MW fuel cell system for a period of 20 years at a rate of $0.10/kWh. The PPA dictates that OHR Biostar is responsible for installation and maintenance, which includes a stack replacement every five years. Thanks to the PPA, OHR Biostar was able to apply for tax exempt private activity bonds for solid-waste recycling facilities, providing further incentive for the fuel cell's installation.