Third Party Ownership - Host / Developer
========================================

The Third Party Ownership - Host / Developer model calculates financial metrics for a renewable energy system installed on a residential or commercial property. The property owner, or host, makes an agreement with a third party, or developer, who installs, operates, and owns the system. The system reduces the host's electricity bill, and the host makes payments to the developer for the power generated by the system at a fixed rate negotiated through a power purchase agreement or PPA.

SAM displays results of the financial model in the :doc:`cash flow <../results/cashflow>`.

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

* Determine the PPA price that covers the developer's costs.

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

* Compare the host's "indifference point" to the PPA price to compare the host cost and savings.

You can use the **Indifference vs PPA** :doc:`macro <../reference/macros>` to generate a graph of the :doc:`host indifference point <../financial-metrics/mtf_indifference_point>` and :doc:`PPA price <../financial-metrics/mtf_ppa_price>` over a range of system sizes to help determine how large the system would need to be to be economically feasible from the host's perspective:

.. image:: ../images/IMG_FinHostIndifferencePlot.png
   :align: center
   :alt: IMG_FinHostIndifferencePlot.png

For an overview of third party ownership financing, see the `Solar Energy Industries Association Issues and Policies page <https://seia.org/third-party-solar-financing/>`__ on the topic.

.. note:: To explore a third party ownership power purchase from the host's perspective to compare a power purchase agreement to a lease agreement, use the :doc:`Third Party - Host <fin_tpo_host>` model.

Solution Mode
~~~~~~~~~~~~~

The internal rate of return is the developer's rate of return. The PPA price is the price paid to the developer by the host for power generated by the system.

.. include:: ../includes/snip_revenue_solution_mode_adv.rst

Analysis Parameters
~~~~~~~~~~~~~~~~~~~

The analysis parameters specify the analysis period, inflation rate and discount rate.

**Analysis Period**
  Number of years covered by the analysis. Typically equivalent to the project or investment life. The analysis period determines the number of years in the project :doc:`cash flow <../results/cashflow>`  .

**Inflation Rate**
  Annual rate of change of costs, typically based on a price index, expressed as a percentage. SAM uses the inflation rate to calculate the value of costs in years two and later of the project cash flow based on Year One dollar values that you specify on the :doc:`Installation <../getting-started/costs>`   :doc:`costs <../installation-costs/installation_costs>`   page, Financial Parameters page, :doc:`Electricity Rates <../electricity-rates-and-load/electricity_rates>`   page, and :doc:`Incentives <../incentives-and-depreciation/cash_incentives>`   page.

  The default value of 2.5% is based on consumer price index data from the U.S. Department of Labor Bureau of Labor Statistics, and is the average of the annual average consumer price index between 1991 and 2012.

  The inflation rate may be either a positive or negative value.

**Real Discount Rate**
  Specify the real discount rate for both the host and developer.

  A measure of the time value of money expressed as an annual percentage. SAM uses the real discount rate to calculate the present value (value in year one) of dollar amounts in the project cash flow over the analysis period and to calculate annualized costs.

  SAM's financial model results are very sensitive to the real discount rate input. If you plan to use metrics like the net present value (NPV), levelized cost of energy (LCOE) and PPA price, and internal rate of return, you should carefully consider the discount rate to use for your analysis. The default value is based on a reasonable guess for renewable energy projects in the United States. Because discount rates are very subjective and project developers are typically reluctant to share information about discount rates, published documents on renewable energy finance typically do not include detailed information about discount rates.

.. note:: For projects with one of the PPA financial models, SAM includes both a discount rate and internal rate of return (IRR) in the analysis. For these projects, the discount rate represents the value of an alternative investment, and the IRR can represent a profit requirement or the risk associated with the project. For example, the IRR may be higher than the discount rate for a renewable energy project with higher risk than an alternative investment.

**Nominal Discount Rate**
  SAM calculates the nominal discount based on the values of the real discount rate and the inflation rate: 

*Nominal Discount Rate = [ ( 1 + Real Discount Rate ÷ 100 ) × ( 1 + Inflation Rate ÷ 100 ) - 1 ] × 100*

Project Tax and Insurance Rates

Salvage Value

Project Term Debt

Taxes and Insurance Rates
~~~~~~~~~~~~~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_taxes_insurance.rst

Property Tax
............

.. include:: ../includes/snip_financing_property_tax.rst

Salvage Value
~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_salvage_value.rst

Construction Financing
~~~~~~~~~~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_construction_period.rst

.. _tpo-host-debtservice:

Project Term Debt
~~~~~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_debt_terms.rst

Cost of Acquiring Financing
~~~~~~~~~~~~~~~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_cost_of_financing.rst

Reserve Accounts
~~~~~~~~~~~~~~~~

.. include:: ../includes/snip_financing_reserves.rst