A range of financing options is available to firms investing solar power. At one end of the spectrum, projects can be self-financed using cash or borrowed funds. In such cases, the investor/power user reaps all of the power savings and tax incentives. Depending on borrowing costs and utility rates, the initial investment will be paid back in three to five years. At the other extreme, users can consume solar power under a power purchase agreement (PPA), which requires no up-front investment at all. In such cases, a third party will pay Suntech Hawaii to install the system on the client’s roof and then sell solar power to the user for a fixed period, typically 15 to 20 years. In this case the project funder receives the tax credits but the user benefits by being able to purchase power at rates below the current cost of grid power and by stabilizing a key component of operating costs over the contract period.  Given Hawaii’s reliance on petroleum for the majority of its electricity, this input price hedge is particularly valuable. In between the two extremes are solar equipment leases, which have shorter payment terms than PPAs with the tax incentives still going to the third party financer.

The appropriate financing vehicle varies for a given application and power user.  The advantages of each approach are summarized below. Suntech Hawaii works closely with our clients to help them determine which financing is most appropriate given their goals and needs.

CASH/LOAN

• Positive cash flow in all years (assuming customer can use state credits can be used)
• Payback under five years, depending on power costs (i.e., island, service class)‏
• 20+ years of free power
• Becomes an asset that raises building value

LEASE

• Positive cash flow from Month 1
• Buy system for fair market value at end of lease term
• Becomes an asset that raises building value

Power Purchase Agreement (PPA)

• No initial investment, only charged for power used
• Pricing below current price of grid power
• Rate of price increase is fixed -  hedge power costs/de-link from  oil prices
• Typical term is 15 to 20 years