Why charging tenants for solar using a Power Purchase Agreement (PPA) is a bad idea

Make 3x more revenue by selling solar energy to tenants at market rate

Mark-to-Market (MTM) revenues outperform PPAs by 3x.

For a 32k sqft. office building, $4,570,889 of additional revenue is collected by billing tenants using MTM approach as compared to typical returns from a fixed PPA with a 2% escalator. At the end of 20 years, an MTM billing service will have collected $6,773,017 from tenants as compared to $2,202,128 collected by a traditional PPA.

What is a PPA?

Power purchase agreements or PPAs solve the problem of financing solar investments by selling a fixed amount of power to a tenant for a fixed rate. In such an arrangement, the tenant signs a long term (20+ year) contract with the property owner to purchase a minimum amount of power at a set rate, with a 2% per year rate escalator.

What is the MTM approach?

MTM pegs the value of solar electricity to what the local utility company would have charged the tenant for the power, if the entirety of power was bought from the grid. To implement MTM approach, one would take the published rate schedules from the local public utility, and combine it with 15m interval data collected from meters to produce “to the penny” accurate bill.

Why are fixed rate PPAs a bad idea?

PPAs introduce risk for both tenants and owners:

  1. Lots of potential revenue is left “on the table”.
  2. A long term, heavy contract is not appealing to either party.
  3. PPA and fixed rate billing have recently been challenged for arbitrary charges as well as accuracy of the bills. Tenants have demanded that such bills show itemized fees, rather than blended rates. (See Tenants across San Diego fired up over Conservice billing)
  4. It’s difficult to predict fair electricity pricing over 20 years. Higher than expected market price results in lost profits for the property owner. Lower than expected market pricing means unhappy tenants that are paying too much for electricity. In California a fixed PPA also runs the risk of charging residential tenants above the California Public Utilities Commission (CPUC) published rate for electricity, which is illegal.
  5. It’s difficult to predict energy consumption. Higher than expected consumption by tenants reduces owner revenues as more grid power needs to be purchased at market rate, and sold at a fixed rate. Lower consumption means that tenants are paying for electricity that they won’t be using.
  6. With a PPA, the property owner is still burdened with the responsibility of tracking energy usage, and providing a bill to the tenant. The bills produced are rudimentary, single line invoices.

MTM bill vs. PPA bill

When tenants switch from a local utility bill to a PPA, or fixed rate billing, they are often perplexed as to why the bill has no itemized details. These simple invoices risk undercharging or overcharging the tenant. PPAs introduce a new way of charging for electricity that your tenant will be unfamiliar with. The opaqueness of a blended rate may cause a tenant to challenge the methodology or argue that the rate being charged isn’t correct: Tenants across San Diego fired up over Conservice billing

Traditional PPA Bill
Traditional PPA Bill

Ideally a property owner should mimic the local utility bill page-for-page, so there is no confusion by the tenant over how they are being charged for electricity. The tenant can compare the new bill with the bill received previously by the local utility to see that all fees are justified and correct. Using an MTM approach ensures that tenants are never overcharged or undercharged for electricity.


We conducted a comprehensive analysis of a typical medical office building’s five-year energy usage in San Diego, California. The building spans 32,000 square feet and houses approximately 20 tenants, consuming around 300,000 kWh of electricity annually. To determine the actual electricity costs, we utilized the SDG&E commercial AL-TOU GENERAL SERVICE rate schedule spanning from 2018 to 2023.

Our initial PPA rate was established by taking the average cost of electricity for the building in 2018, which stood at $0.2865 per kWh. For the subsequent years from 2019 to 2039, we factored in a 2% escalator.

Using our MTM approach, we created bills for tenants by applying actual 15m interval usage to the AL-TOU GENERAL SERVICE rate published by SDG&E for 5 years spanning 2019 to 2023. We then took the average year-over-year rate increase for the last 5 years to predict future revenues for the subsequent 15 years as compared to a fixed PPA.


Each row shows cumulative revenue for the year starting from 2019. To simplify the table, we show predicted revenue every 10 years

Don’t leave $ on the table

$6.8M of revenue is “left on the table” when using a PPA and underscores the financial advantage of utilizing MTM approach over 20 years. Our analysis shows that over the last 5 years, MTM earned $113,366 more than a PPA for a 32k sqft. office building. Under a PPA, the total revenue over the last 5 years would have amounted to $445,328, as opposed to the $558,694 generated by MTM. When we extrapolate the use of MTM over a span of 20 years, MTM revenues outperform the fixed rate PPA by 3x. Energy rates surged by an average of 10.47% per year over the last 5 years. This translates to an impressive $6.77 million in potential energy revenue for a property owner, as compared to a mere $2.2 million for a standard PPA.

Interested in learning more? Check out Energy311’s Blog!