Solar PPAs and Calculating Annual Energy Cost Reductions

Josh, my feeling is that LEED would recognize just the cost from the utility, but it seems like this would be one to confirm with GBCI to be sure. I'd email them your question—and post back here what you learn.

I agree with Tristan, only the utility costs will need to be reported. Due to regulations, PPAs are specifically not acting as utilities, they are not regulated. This is not a utility cost, it is a financing option to for installing renewable energy that is paid on a kWh basis. Remember when you ask GBCI, state your case and the expected result (ie it is best NOT to ask open ended questions in this case)!

This is what you can do within the rules.The basic rules are that you use a reasonable rate for your area and that it is identical in both models. The specific rate used can be from a variety of sources. This is what you should do. In the name of accuracy you should usually use the actual rate and the actual cost. I agree that one should not be penalized for signing a PPA but I am not sure you are being penalized in LEED. You still get the count the solar toward this credit. So with the solar you are at 70% which will drop slightly with the higher rate. It won't drop far enough to get under the highest threshold so with either rate you get all the points. Which makes this a bit of a moot point relative to LEED points.

Marcus, I am now confused. Are you saying that Josh has to report the PPA payments as a utility cost? A PPA is not a utility. In my mind, he needs to use the true cost of the utility rate for baseline and design, but under design, only has to report that energy actually consumed by the building, not payments made to the PPA. Can you please clarify your response?

There may be a difference between what he has to do and what he should do. The rules (what he has to do) allow for him to use a variety of reasonable sources to determine the rate he uses. He does not have to report the PPA payments. One could argue both sides of this PPA cost. It could be viewed as you indicate (a financing mechanism) or it could be viewed as a solar premium (paying more for a cleaner energy source). I might ask the owner which way they see it. Is this an energy production cost or not? How is his accountant coding it? A utility cost or a financing cost? If a utility cost then the right thing to do in my opinion would be to include it in the cost of the electricity.

I am assuming from your post that the 70% is the savings relative to an Appendix G baseline when you include the solar production as a renewable energy source. You indicated that the savings without solar dropped from 35% to 33% with the higher rate so I am just assuming that the same would happen when you subtract the solar (percent savings would also drop a bit) but maybe that would not be the case as the lower the rate the higher the saving (all things being equal). My point was that whether you got 65% savings or 75% savings you will get the same number of LEED points. As you know the escalation does not matter since the values are just a one year snapshot. Maybe I am not understanding what you are asking - I appear to be confusing both you and Scott! If viewed strictly as a financing method then of course you would not count the PPA cost anymore than you would count the lease cost or the cost of the system in general. The cost of the fuel is $0. So use the utility rate only in the model and the proposed virtual rate for the solar production. This all assumes that the RECs have not been sold. If they have you either can't count it at all or have to replace them.

Now the REC is not something I thought about. That is a good point, and one that frankly I do not understand well. I know about buying RECs, but when part of a PPA, I do not understand them. As to the original confusion, I thought Josh was saying that if he uses $0 for the solar cost, then he gets to the 70% under baseline, but if he includes the PPA cost as a utility, then the savings drop to 33% under baseline. Hence my focus on if PPA is a utility or not. Can you explain more about the RECs and how that part affects how you make this calculation. Frankly, I am hoping to see more PPAs on projects, so this is a key point I want to understand better.

If the RECs are sold you simply cannot count the PV toward EAc2 or EAp2/EAc1. Depending on the state market the RECs are often sold to help finance the system. If you sell the RECs you can replace them and then count the PV toward the credits. There is a LEED Interpretation that includes all the requirements. I personally do not agree with this approach but that is the way LEED works. There was a thread in one of the other LEED User forums recently on this subject.

OK, sorry for my confusion. I agree with you about the RECs. Hard enough to get a solar system financed without LEED putting up unnecessary barriers. Get the LAC/EA TAG working on that!

Josh/Marcus/Scott, I am coming across similar situation where my project is installing rooftop PV through a third party PPA. Were you able to resolve the confusion regarding how to account for PPA for EAc2? Can I simply calculate the energy cost reduction without PV, and use the virtual rate and projected renewable energy production to calculate the offset by the system as if the renewable energy source is free? Previous discuss had a point that this renewable energy source is not purchased from utility and therefore an argument can be made that it does not contribute to the energy cost. Please let me know if my interpretation is accurate. 

I believe that you are correct.