Deciding on a Financing Approach 

and Beginning PV Procurement 

Jenny Heeter

Chandra Shah

City and County Solar PV Training Program

Module 5

NREL/PR-6A20-71686
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NREL | 3

PV Project Implementation 

Process

Understand Project 

Financing, Policies, 

and Incentives

Decide on a Financing 

Approach and Begin 

Procurement
NREL | 4

Learning Objectives

• Be able to decide whether direct ownership, third-party 

ownership, or an energy performance contract is the best 

option for your city or county

• Understand next steps in the PV procurement process, 

depending on which method you select
NREL | 5

Direct Ownership

Power Purchase Agreement (PPA)

Energy Savings Performance Contract (ESPC)

Other Options

Procurement Lessons

Resources

PV Finance and 

Procurement
How do Local 

Governments Finance 

PV? • GTM research shows that 

about 70% of the public 

sector solar used third-party 

ownership model in 2017. 

• Public sector entities, who 

are tax-exempt, rely on thirdparty ownership to capture 

the investment tax credit 

(ITC). 

• GTM expects a slight decline 

in third-party owned systems 

in 2023 when the ITC 

declines to 10% and taxexempt customers or 

customers without sufficient 

tax appetite turn to direct 

ownership.

Source: GTM Research. 2018. Commercial Solar Consumer Finance Trends. April. 
Direct Ownership
NREL | 8

Direct Ownership 

Overview

• Implement a PV project that is government-owned

• Hire engineering, procurement and construction (EPC) 

contractor to construct project and possibly also a 

separate O&M contract

• Cities may not have the cash to purchase a system 

outright. Cities can fund their PV system via internal or 

external funding sources. For external funding sources, 

cities must have available borrowing capacity. 

Internal Funding Sources External Funding Sources

• Revenue generated by tax 

collection and/or user fees

• Other available cash

• Bonds

• Loans
NREL | 9

Direct Ownership 

Example

• The Peralta Community College 

District, in California, used a 

general obligation bond (G.O. 

Bond) for their solar power 

installation at Laney College. 

• Their G.O. Bond monies could be 

used for capital improvement 

project, e.g. new construction 

and renovations.

• Savings from the solar will go 

back into the general fund, and 

can support non-capital 

expenditures.

• 231 kW installed on a baseball 

field house and parking lot.

Source: Borrego Solar, https://www.borregosolar.com/commercial-solar-systems/peralta-community-college-district

Laney College, in California, installed 231 kW of solar 
NREL | 10

Direct Ownership 

City Example

• Some cities may choose to own 

the PV system when grant 

funds can cover some or most 

of the purchase.

• Hutchinson, Minnesota 

received grant funds from their 

utility, Xcel Energy, that 

covered 3⁄4 of the cost; the city 

covered the remaining amount.

• The city installed a 400 kW 

system on a closed landfill.

• The PV system will be directly 

connected to the city’s 

wastewater treatment plant.

Source: https://www.ci.hutchinson.mn.us/december-2-grand-opening-ceremony-landfill-mounted-solar-pv-system/

Hutchinson, Minnesota installed 400 kW of solar on a landfill
NREL | 11

Direct Ownership

Procurement Pathway

Engage in O&M, if you didn’t hire an O&M contractor

Commence construction

Sign contracts

Evaluate responses

Consider hiring an O&M contractor

Issue an RFP for an EPC contractor
NREL | 12

Municipal Lease

• Municipal leases are also termed “tax exempt leases” or “taxexempt lease purchase (TELP)”

• Customer owns the system at the end of the lease term

• Municipal leasing is an alternative to traditional debt financing

• Lower interest rates because the interest is tax-exempt

– Carefully review an O&M agreement, if you plan to sign one, to 

ensure that it does not prevent the interest from being taxexempt

• Faster process than issuing debt 

• Typically are not considered debt, for state purposes

• May require minimum system size, comparable to PPA 

preferred system sizes, generally >500 kW
PPAs
PPA Overview

• Typically the best option for large PV systems (generally >500 kW), as long as 

there are no legal barriers such as lack of authority

• Long term contract typically required (20 years) 

• Purchases, installs, owns, operates & maintains PV project

• Developer can likely take advantage of federal and other tax 

incentives

• Developer could sell the project’s solar renewable energy 

certificates (SRECs), if they are valuable

Third Party 

Solar Developer

• Hosts the on-site PV project

• Purchases the energy from the PV project for life of the 

contract

City
NREL | 15

PPA 

Example

• Washington, D.C.’s Department of 

General Services (DGS) implemented 

approximately 11 MW of solar for 40 

properties, through a 20-year PPA 

with WGL Energy. 

• The properties include schools, 

hospitals, recreation centers and the 

Police Training Academy.

• High SREC prices in the D.C. market 

make solar PPAs favorable. 

• D.C. DGS expects to save $25 million 

in electricity costs over the PPA.

• Separate rates for rooftop and carport 

solar projects.

• Project design and construction, 

managed by Sol Systems, took 

approximately 18 months.

Sources: https://betterbuildingssolutioncenter.energy.gov/implementation-models/power-purchase-agreement-dc-department-general-services; 

https://solarbuildermag.com/news/details-on-11-mw-solar-portfolio-now-live-throughout-washington-d-c/

Ribbon cutting ceremony for Washington, D.C.’s 11.8 MW of solar
NREL | 16

PPA

Procurement Pathway

Commence construction

Sign contract

Evaluate responses

Issue an RFP for developer offering a PPA option
NREL | 17

Knowledge Check #1

If your city or county has no or little upfront capital to invest 

in PV, which financing options should you use?

• Direct Ownership

• Power Purchase Agreement

[Answer: Power Purchase Agreement]
Energy Savings Performance 

Contract (ESPC)
NREL | 19

ESPC 

Overview

• Also known by other names such as Performance 

Contracting, Energy Solutions Performance Contracting, 

energy service company (ESCO) project, etc.

• Public-private partnership with an ESCO to implement 

energy measures

– Typically ESCOs implement energy efficiency (EE) and 

energy management measures, but PV can also be included

• Guaranteed savings requirement with annual 

measurement and verification (M&V)

– This is what distinguishes an ESPC from direct ownership
NREL | 20

Common ESPC Structures & Project Cash Flow

• If including PV in an ESPC, the PV 

can be either government or 

third-party owned, if third-party 

ownership is allowable under the 

applicable state law

• ESCOs typically want minimum 

project sizes of $1.0-$1.5 million 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

No ESPC During

ESPC

After ESPC

Customer’s Cash Flow

Customer's Savings

ESPC Payment

Utility Costs
NREL | 21

ESPC Regulations

• The ability for a city to enter into an ESPC is governed by state law 

– May be refined by local laws/regulations

• Review your ESPC state law and other applicable regulations carefully. 

Considerations include:

– What is the maximum allowable term?

– What types of energy efficiency, solar, or other measures are eligible?

– Can longer payback items be bundled with shorter payback items?

– What are the allowable financing options?

– Savings requirement details 

– What budget categories can be used to make financing payments?

– Are there requirements or guidelines regarding how the procurement 

must may be conducted? 

• Consult city attorney for law/regulation interpretation (may vary)
NREL | 22

Financing an ESPC

• ESPCs require some financing source, either internal or 

external

• The preferable option depends upon factors such as what is 

allowable under the ESPC and other applicable regulations; and 

local market conditions

• Consult appropriate finance and budget department staff

• ESCO may assist with financing 

– May provide financing in limited cases
ESPC Procurement Approach

Guaranteed energy savings are measured and verified

ESCO develops projects (PV only or PV+efficiency)

Sign contract with ESCO

Arrange for project financing 

ESCO conducts an energy audit and develops an implementation proposal

Select an ESCO

Evaluate responses

Issue an RFP for an ESCO

Determine if your ESPC will be PV-only or PV + efficiency; who will own PV
NREL | 24

ESPC Example

• The city of Lowell, Massachusetts signed an ESPC with Ameresco for energy 

efficiency, energy management, and PV. The agreement totals $21.1 million, 

with $1.5 million in annual energy savings. The total PV project size is 1.8 

MW.

• Ameresco designed, installed, owns and operates 342 kW of PV at 3 

schools; City pays Ameresco a discounted electricity rate for the PV 

production.

• The City signed an additional PPA with Ameresco for 1.5 MW of PV on a 

landfill.

Source: https://www.ameresco.com/wp-content/uploads/2017/07/lowell-ma-case-study-v2.pdf

Lowell, Massachusetts’ 1.5 MW solar project on a landfill
NREL | 25

Procurement 

Quick-Reference

Do you have access to cash, low-interest debt, 

and/or grant dollars?

Direct 

Ownership

Do you have no or little upfront capital?

Is the planned PV project larger than 500 kW 

(alone or through aggregating smaller sites)?

PPA

Are you planning to upgrade facilities to make 

them more energy efficient?

Is your planned PV project small?

ESPC
NREL | 26

Knowledge Check #2

What should your city or county do before pursuing an 

ESPC? Check all that apply.

• A: Check all applicable laws and regulations

• B: Consult your city or county attorney

• C: Contact your state’s energy office for resources

• D: Issue an RFP for a solar developer

[Answer: A, B, and C]
Other Financing Options
Other Options

• Hybrid approaches: In many cases, particularly for direct ownership, 

a combination of financing sources are used. For example, grants, 

bonds, and other sources. Grant funding can also be used to buy 

down the cost of a PPA. 

• Utility partnerships: For cities with municipal utilities, consider 

unique contracting arrangements. Partnerships with investor- owned utilities may also be possible, but would likely require 

regulatory approval. 

• Community Solar: Some utilities have a Community Solar program 

that allows more than one customer to purchase a share of a PV 

project. If so, a city may want to host and/or buy shares in a 

community solar project. 

– Be sure to consider the SREC treatment and program structure if pursuing 

this option.
Procurement Lessons
NREL | 30

Elements of Success

• Research financing options in your area and determine 

what is allowable 

• Involve key city staff such as attorney, finance and budget; 

understand and meet applicable regulations

• Take advantage of state energy office and/or other 

resources 

• Utilize available standardized and approved templates, 

guidance and protocols; pre-qualified contractors 
NREL | 31

Regulatory and Contract 

Issues

• Appropriations Concerns for Long-Term Contracts

– PPA and lease payments typically require appropriated funds; if the 

funds are not appropriated, then the local government cannot make the 

payments.

– Solutions include clauses that:

• Acknowledge the risk

• Provide steps that both the city and the solar developer will take to minimize 

risk

• Provide remedies to the developer if the city is not able to make PPA payments

• Voter Approval

– If issuing bonds, voter approval, or previous bonding authority, will be 

needed.

• Maximum Contract Terms

– Local governments may have restrictions on the length of contract they 

can sign for various types of services, including PV.

– Discuss the contract length early on in the procurement process.

Source: SolSmart Guidebook, forthcoming
NREL | 32

Knowledge Check #3

What clauses might a city or county PPA need to include? 

• Acknowledge the risk of the city or county not 

appropriating funding for the PPA

• Provide steps that both the city and the solar developer 

will take to minimize risk

• Provide remedies to the developer if the city is not able to 

make PPA payments

• All of the above

[Answer: All of the above ]
NREL | 33

RFP Basics

• Our solar RFP template will be available in June for you to 

use.

• Key components of a successful solar RFP include:

– Requiring respondents to provide responses in standard 

metrics

– Provide sufficient site information

– Be precise where necessary
NREL | 34

Evaluation Criteria

• Your city or county may have its own criteria or weighting 

priorities

• Example criteria and weighting:

– Cost-effectiveness of the proposal 35 points

– Technical approach and schedule 30 points

– Company qualifications and experience 20 points

– Project team experience and approach 15 points

Source: City of Fresno – Department of Airports, https://www.nrel.gov/technical-assistance/assets/pdfs/stat_webinar_050113_presentation.pdf
Resources
NREL | 36

NREL’s PPA Widget Tool

• NREL developed a solar PPA template for New York’s KSolar program. See 

http://widgets.nrel.gov/financere/interactive-solar-ppa/#

• The widget provides contract language along with 

explanations in plain English of the key terms. For 

example, there is a section on appropriations concerns. 
NREL | 37

Resources

• PPAs:

– SEIA’s PPA Template, https://www.seia.org/research-resources/model-leases-and-ppas

– NREL’s PPA Widget, http://widgets.nrel.gov/financere/interactive-solar-ppa/

• ESPC/ESCOs:

– DOE’s Better Buildings ESPC Toolkit https://betterbuildingsinitiative.energy.gov/energysavings-performance-contracting-espc-toolkit

• State ESPC authority info: Click on “Considering ESPC” and then “Legislative Library”

• See also “Implementing ESPC Projects”

– Energy Service Coalition

• Model ESPC documents: http://www.energyservicescoalition.org/resources/modeldocuments

– State Energy Office Resources: http://mojo.naseo.org/members-states

• Colorado Energy Office has many resources on ESPCs: Pre-qualified ESCOs, templates,

specified audit costs (does not include solar analysis) based on certain criteria such as

distance from CO energy office

– Other websites

• State ESPC enabling statutes: http://www.ncsl.org/research/energy/state-energysavings-performance-contracting.aspx
NREL | 38

Resources

• RFP process:

– Key Elements of Solar Requests for Proposal, webinar, slide deck and recording:

https://www.nrel.gov/technical-assistance/webinars-2013.html#solar_rfp

– Writing Solar Requests for Proposals (RFPs): Lessons from NREL's University PV

Implementation Assistance Program https://www.nrel.gov/docs/gen/

fy16/66369.pdf

• Solar operations and maintenance (O&M) best practices:

– NREL’s Best Practices in Photovoltaic System Operations and Maintenance:

https://www.nrel.gov/docs/fy17osti/67553.pdf

– FEMP’s O&M Best Practices for Small-Scale PV Systems (1.5 hour video training): https://

www4.eere.energy.gov/femp/training/training/om-best-practices-small-scale-pv-systems;

http://www.wbdg.org/pdfs/FTS27_LearnerGuide.pdf

– FEMP’s Operations and Maintenance for Optimal Photovoltaic System Performance (5.0

hour video training): http://www.wbdg.org/continuing-education/femp-courses/femp56

• Other resources

– Smart Electric Power Research’s Community Solar Program Design Models: https://

sepapower.org/resource/community-solar-program-designs-2018-version