Your final financial analysis should calculate both (1) how much you expect the PPA to cost the city over its lifetime, and (2) how those costs compare to the city’s costs in your business-as-usual scenarios. Ideally, this analysis should culminate in net present value (NPV) calculations for each scenario. As noted previously, given the complexity of this modelling, many buyers choose to hire external consultants to perform this analysis.
When you present your financial analysis to the city’s CFO or equivalent, you should also note the inherent benefits of off-site physical PPAs, such as the following:
- Physical PPAs stabilize a city’s energy expenses, making energy costs more predictable over a long period.
- Off-site physical PPAs are signed with large projects, and therefore benefit from economies of scale that are difficult if not impossible to achieve through on-site or community solar projects. As a result, these deals can often provide renewable energy at the lowest possible cost.
- Up-front construction costs to build the plant are covered by debt and equity investors, meaning that the city will not have to provide any up-front capital investment.
You may also wish to mention or explicitly include the value of any ancillary benefits this deal would provide to your community. These values might be influenced by: the social cost of carbon, local workforce development, environmental benefits, or local air quality and health benefits. See the “Short-List and Prioritize Specific Renewable Energy Initiatives” section in the “Getting Started” section for links to tools that can help quantify these benefits.
NREL’s System Advisor Model (SAM) is an excellent tool to understand the potential costs of renewable energy systems given certain inputs. NREL published the Excel model which lies behind SAM’s utility-scale project calculations here.