Power Purchase Agreements

To encourage the installation of fuel cells for stationary power, the three largest fuel cell manufacturers – Bloom Energy, FuelCell Energy, and UTC Power – now 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.

An example of each company’s Power Purchase Agreement is listed below.

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.

FuelCell Energy

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.

UTC Power

UTC Power offers their fuel cells through an Energy Service Agreement (ESA), which is similar to the PPAs offered by Bloom and FuelCell Energy.  Several of UTC’s customers now receive fuel cell power through an ESA, including Hamden High in Connecticut, which signed a 10-year contract in 2011 to receive fuel cell electricity for no upfront cost.  Under the PPA, UTC will install and maintain the fuel cell, while the high school will pay for its benefits at a fixed cost.  As an added benefit, the school plans to integrate the fuel cell system into its curriculum.