The Third Party Ownership - Host model calculates the net present value (NPV) of a renewable energy system installed on a residential or commercial property. The property owner, or host, makes an agreement with a third party who installs, operates, and owns the system. The system reduces the host's electricity bill, and the host makes payments to the owner.

In a power purchase agreement (PPA), the customer pays for the power generated by the system at a fixed rate called the PPA price. In a lease agreement, the host makes monthly lease payments on the system.

You can use the Third Party Ownership - Host model to:

•Compare the benefit of a lease agreement to a PPA from the host's perspective.

•Compare the Third Party Ownership - Host model to the Residential or Commercial model to compare third party ownership with direct ownership.

•Investigate the value of different electricity rate structures and load profiles under a third party ownership agreement.

For an overview of third party ownership financing, see the Solar Energy Industries Association Issues and Policies page on the topic.

SAM's Third Party Ownership - Host model makes the following assumptions:

•Project costs and benefits are from the host (residential or commercial property owner) perspective.

•The project cost consists of payments by the host to the third-party system owner, either as monthly lease payments or payments per unit of electricity generated by the system.

•The project benefit is in the form of electricity bill savings, which depend on the host's electric load, electricity rates, compensation for excess generastion, and amount of power generated by the system. All of the power generated by the system is available to the host.

•For a lease agreement, the host makes monthly lease payments with an optional annual escalation rate. Inflation does not apply to lease payments.

•For a PPA, the host makes monthly payments for electricity generated by the system at the rate defined in the PPA with an optional annual escalation rate.

•Inflation does not apply to monthly payments for either the lease agreement or PPA.

Note. To explore a third party ownership power purchase agreement from the owner's perspective, use the Third Party - Host / Developer model.

Inputs

Terms of Agreement

The terms of agreement determine how the host pays for the renewable energy system.

Lease agreement

The host makes fixed monthly lease payments for the system.

Power purchase agreement (PPA)

The host makes monthly payments for the electricity generated by the system.

First year monthly lease price

For a lease agreement, the amount of the host's fixed monthly payments in the first year of the agreement period.

Lease price escalation rate

For a lease agreement, the annual increase in the monthly lease payments. If the lease price is constant over the agreement period, enter an escalation rate of zero.

First year PPA price

For a PPA, the price of electricity generated by the system paid by the host in the first year of the agreement period.

PPA price escalation rate

For a PPA, the annual increase in the PPA price. If the PPA price is constant over the lease agreement period, enter an escalation rate of zero.

Analysis Parameters

Agreement period

The number of years in the lease agreement or PPA. This is the period over which the system operates and the host makes payments to the third party owner.

Inflation rate

The annual rate of inflation. Inflation applies to the electricity rates paid by the host as defined on the Electricity Rates page. It does not apply to the lease payments.

Real discount rate

A measure of the time value of money expressed as an annual rate.

Nominal discount rate

SAM calculates the nominal discount based on the values of the real discount rate and the inflation rate, and uses this value to calculate the project's net present value (NPV):

Nominal Discount Rate = (1 + Real Discount Rate) × (1 + Inflation Rate) - 1

Results

Metrics

The metrics appear in the Metrics table and in the Data table under Single Value.

Net present value

The net present value (NPV) is the present value of the annual cash flow, and represents the net savings over the agreement term. In general, a positive NPV represents a project that generates enough savings to justify the agreement cost. A negative NPV indicates a project whose cost is greater than the savings.

Annual Results

The annual results appear in the Data table under Annual Data.

Annual cost

The annual cost of the agreement. For a lease agreement, it is the sum of monthly lease payments for each year in the agreement period. For a PPA, it is the sum of electricity payments for each year.

The annual cost is constant over the agreement period unless you specify an escalation rate for either the lease price or PPA price.

Energy value in each year

The value of the electricity purchases offset by the renewable energy system, or the annual reduction in the host's electricity bill.

Cash flow

The net cost of the agreement, equal to the annual savings minus lease payments.