Updated: September 12, 2025
Thesis: separate the equipment from the energy
Pairing a Solar PPA with C‑PACE lets owners pay for energy as a service while financing building‑side upgrades (roof, switchgear, insulation, reroof coordination) through a property assessment. The PPA keeps solar assets off your balance sheet; C‑PACE improves building cash flow and NOI with long‑tenor, non‑recourse‑like repayment through the tax bill. Done right, you get lower $/kWh and stronger coverage ratios without CapEx.
1. Legal & Accounting Treatment: Who owns what, who books what?
Solar PPA (Power Purchase Agreement)
- Ownership: Third‑party PPA provider owns, operates, and maintains the system.
- Payments: You pay for energy (kWh) delivered; no equipment purchase.
- Accounting: Often treated as a service contract; no asset or lease capitalization by host when structured without control/embedded lease indicators. (Consult ASC 842 guidance with your auditor.)
- Tax: Tax credits/accelerated depreciation typically monetized by PPA owner.
C‑PACE (Property Assessed Clean Energy)
- Mechanic: Voluntary assessment recorded on the property; repaid via property tax bill.
- Use case: Funds building improvements (e.g., roof, electrical upgrades, insulation) that enable or complement solar.
- Accounting: Classified as an assessment/obligation tied to the property; not equity or traditional secured debt. (Confirm local GAAP treatment.)
- Priority: Often senior to mortgages; requires lender consent (SNDA/acknowledgment). See Texas Local Government Code Ch. 399.
2. How to Structure a C‑PACE + PPA Stack (Step‑by‑Step)
- Separate scopes: PPA covers solar generation; C‑PACE covers building improvements (roof, switchgear, structural, insulation). Avoid cross‑collateralization.
- Lender consent: Obtain mortgagee consent for the C‑PACE assessment; align SNDA so PPA survives transfer or foreclosure.
- Service language: Draft PPA to emphasize energy delivery, not equipment rental, to avoid embedded lease classification.
- Transfer provisions: Ensure PPA is assignable to a buyer/tenant and that the C‑PACE assessment automatically runs with the land.
- Insurance & O&M: Keep O&M with PPA owner; building owner maintains roof warranty—get roofer letters.
3. Decision Checklist for CFOs & General Counsel
Accounting & Legal
- Confirm PPA is service under ASC 842 (no identified asset/control indicators).
- Document C‑PACE as a property assessment; align with lender consent.
- Set transfer & SNDA language so both instruments survive a sale.
Finance & Risk
- Run coverage ratios using measured interval data (energy savings vs. assessment + PPA).
- Stress test: demand charges, interconnection delays, production variance.
- Coordinate reroof timing and roof‑warranty letters.
4. Where to go deeper
5. FAQ: C‑PACE + PPA for Off‑Balance‑Sheet Solar
A: If drafted and operated as a service (no identified asset, no control over use, output‑based payments), many auditors treat it outside lease accounting. Always confirm with your auditor.
A: C‑PACE is a property assessment, not a traditional loan. Lenders evaluate it differently; expect consent and underwriting, but treatment may be more favorable than senior debt.
A: Yes—ensure PPA transfer language and SNDA are in your documents; C‑PACE typically runs with the land.
What should a building owner do next?
1) Share interval data and roof details. 2) We design the PPA as a service and map eligible C‑PACE scope. 3) We coordinate lender consent and transfer language. 4) You lock an energy rate without CapEx.
We’ll deliver a redlined term sheet (PPA + C‑PACE) and a coverage ratio model your board and lender can underwrite.
*This article is informational and not legal, tax, or accounting advice. Consult your counsel and auditor. We’ll supply primary‑source citations (ASC 842, state statute, utility manuals) in your custom package.