Legalize It: Behind the Movement to Make PPAs Legal

15 Apr 2015


The PPA dominoes are beginning to fall, and more states are legalizing third party financing. But does it matter?

The PPA dominoes are beginning to fall: Iowa, South Carolina, and Georgia have opened up their markets to third party financing. North Carolina is among the states that may be next. How will that impact the commercial and small-utility scale markets in these states? We ran our models to test out how Georgia and North Carolina would fare.

Just last month, Georgia’s legislature decided that what happens between two consenting parties behind the meter is not the business of the state. While everything is still very early stage, the potential commercial-scale solar sector is looking surprisingly decent – though margins will be tight. For deals to pencil, developers will need a combination of a solid site, a low personal property (AKA “ad valorem”) tax, and PPA rates around 10 cents/kWh. Given Georgia’s relatively low build costs, we could see a fruitful rooftop market harvesting in the Peach State, which is now dominated by utility-scale Georgia Power deals. The biggest test will be if Georgia developers can keep their EPC pricing cost-effective with smaller sized deals, and if they can become accustomed to originating host sites and offtakers (under Georgia Power’s program, developers only needed to find access to farmland for large ground mounts).

Like Georgia, North Carolina’s solar market has been dominated by large utility-scale, ground mount deals. Unlike Georgia, however, PPA authorization is unlikely to move the market to the rooftops, especially if the 35% state tax credit disappears as planned (though extension efforts are pending in the legislature). Our team ran several hypothetical mid-sized commercial scale projects through our models, and given the low prices of electricity, they just won’t pencil. North Carolina developers have been able to beat out the low cost of electricity partially because they have built cheaply with economies of scale. While we applaud any movement to legalize PPAs in the state, we don’t expect to see too many solar covered roofs as a result in the Tar Heel state.  Iowa will likely prove equally challenging, and South Carolina’s got a long way to go.

In sum, PPA authorization is a positive step, but it cannot guarantee to make commercial solar shine in these states. Other factors will still largely influence the viability of the market: cost of capital for a given developer, build costs, electricity prices, solar irradiance, etc. Lower costs, improved efficiency, and more competitive capital will be necessary to move the needle. Just because it’s legal, doesn’t make it viable.

This is an excerpt from our Solar Project Finance Journal, a monthly electronic newsletter analyzing the solar industry’s latest trends based on our unique position in the solar financing space. To view the full Journal or subscribe, please e-mail


Sol Systems is a solar energy finance and investment firm. The company has facilitated financing for 180MW solar projects on behalf of Fortune 100 corporations, insurance companies, utilities, banks, family offices, and individuals. Sol Systems provides secure, sustainable investment opportunities to investor clients, and sophisticated project financing solutions to developers. The company’s tailored financial services range from tax structured investments and project acquisition, to debt financing and SREC portfolio management. Inc. Magazine named Sol Systems on its annual Inc. 500 list of the nation’s fastest-growing private companies for a second consecutive year, ranking it No. 6 in the nation’s top solar companies in 2014. For more information, please visit

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Sara Rafalson

Sara Rafalson