Solar Power Purchase Agreements Coming to Virginia

On March 14, 2013, Virginia Governor Bob McDonnell approved legislation directing the State Corporation Commission (SCC) to conduct a pilot program allowing for certain types of power purchase agreements (PPAs). Under these agreements, a solar developer retains ownership of a solar device, as well as responsibility for financing, installing, maintaining, and ultimately removing the system. The solar customer merely serves as a host for the device and agrees to purchase all the electricity the system produces at a fixed rate. Because PPAs transfer the responsibilities of system ownership to the developer and often allow property owners to go solar with no upfront investment on their part, these agreements can be an attractive alternative to direct system ownership. In some states that have authorized them, PPAs (along with other “third-party ownership” models) have proven to be a powerful driver of the residential solar market. In Arizona, for example, over 90% of new residential installations performed in the fourth quarter of 2012 were owned by a third party. In addition, third-party ownership accounted for over 80% of new residential systems in Colorado, 67% in California, and over 40% in Massachusetts.*

Though the Virginia PPA pilot is likely a step toward seeing more solar installed throughout the state, a few elements of the program make it highly unlikely that third-party ownership will have a significant impact on residential installations in the near term. This is due in part to the nature of the capacity limitations included in the program. Under the pilot, only systems between 50 kilowatts (kW) and 1 megawatt (MW) in size are eligible to enter into power purchase agreements. With the average size for a residential solar energy system somewhere in the 5 kW range, it is difficult to imagine that a residential customer would be interested in a system large enough to be eligible for third-party financing. Even if a homeowner had the energy demand and financial resources to justify such a large system, the state’s net metering cap of 20 kW for residential systems would likely mean that the system owner would not realize the full benefits of their solar investment.

While the new program will not be hugely beneficial for residential customers, it does unlock a new financing opportunity for tax-exempt, commercial, and local government entities. Though the law imposes the aforementioned capacity limits on eligible systems, it also exempts §501(c) organizations from the 50 kW minimum size requirement – allowing them to enter into power purchase agreements for smaller systems making solar more financially attractive to educational, religious, charitable, and certain arts and sciences-focused entities (among many others). Customers with sufficient electric demand to justify a system of a size eligible for the pilot program – most notably businesses and government agencies – stand to gain from the long-term financing these newly authorized PPAs can offer. Large installations such as the state-owned 188 kW array atop the 14th Street Parking Deck in Richmond or the 444 kW system installed at Washington & Lee University may become more common throughout Virginia as a result of the pilot program.

Regardless of whether or not a local government chooses to benefit from the pilot by installing solar on the properties it controls, municipal and county departments throughout the Commonwealth should ensure they can handle the 50 MW of new solar allowed by the program by updating and streamlining policies and practices governing solar development to reflect the latest best practices. Is your city or county planning office one of those avoided by 36% of installers because of unnecessarily complex permitting requirements? Have permitting fees for solar been set at an appropriate level – compensating the jurisdiction for application reviews while keeping costs low for solar projects. Has solar been integrated into community planning efforts and local zoning codes?

The Solar Outreach Partnership is here to support your community’s effort to make going solar easier. Visit the Resources page to browse our collection of best practices in local solar policy and to learn about the experiences of regional and municipal governments that have taken steps to promote solar. If you would like more hands-on assistance or have specific questions about solar energy, you can connect with our team through the Technical Assistance page.

*Source: GTM Research and Solar Energy Industries Association. U.S. Solar Market Insight Report 2012 Year-in-Review.