Solar PPA

What is Solar PPA?

A Solar Power Purchase Agreement (PPA) is a method of financing solar panels where the retailer (or generator) builds, owns and operates the solar PV system. They are called power purchase agreements because the purchaser (or off-taker) sells electricity generated by the solar system for a fixed price and a fixed period.

The electricity is generated by the solar power system and is charged at a kWh rate (either for the total production of electricity by the consoles or by the site consumption). This is known as either a Production or a Consumption Solar PPA.

The arrangement is typically between 7 to 30 years and usually has an annual price increase for the duration of the term. There is no upfront cost, but the purchaser needs to buy the kWh as agreed in the PPA agreement.

Solar PPA Agreement is suitable for:
● Commercial solar projects
● Solar Battery & Diesel Generator projects
● Off-Grid Solar projects

Advantages of a solar power purchase agreement

Solar power purchase agreements have many advantages for your business, including:
● No upfront costs
● Cashflow positive from day 1
● Predictable energy pricing
● Can be 50% cheaper than grid electricity rates
● No system performance or operating risk
● No liability for system underperformance/malfunction
● No need to work with installers
● Electricity remains an operational expense
● Remain grid-connected – built-in redundancy
● Full O&M servicing + 24/7 remote monitoring
● Potential to easily expand and add new technologies
● Reduce your business’s carbon footprint

Solar PPA vs. Solar Lease

Solar PPAs and a traditional lease are both forms of solar financing with many similar benefits.
However, the main differences are:

Pricing

With a solar lease, you pay a flat monthly fee for the solar panel system, which should be less than what you were paying on your monthly electricity bills. For example, if your business is paying $2,000 a month for electricity, you’d be looking for a lease that was less than $2,000.
In contrast, with a solar PPA, you pay a guaranteed price per kilowatt of electricity produced or consumed (depending on your contract) by your new solar energy system. This price will be lower than the price per kilowatt hour you pay for grid electricity. For example, if you pay 20 cents per kilowatt hour for grid electricity, your solar PPA terms should charge you less than this amount.

Duration

Another difference between solar PPAs and leases is their duration. Solar leases can be as short as 3-5 years, whereas a solar PPA typically lasts at least 10 years in duration, sometimes as long as 30 years.

Which financing option is right for your business?

So, which is right for you – a solar PPA or a solar lease?
That’s where Kuga Electrical can help!

With extensive experience in commercial solar financing, we have the skills and expertise to help you determine the best possible arrangement for your business.

Contact the Kuga team so we can have a chat about how to cut your electricity costs with a renewable financing solution that’s cashflow positive from day 1!

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Solar PPA FAQs

Are solar PPAs worth it?

The major benefit of a solar PPA agreement is that you get a guaranteed low rate for electricity – with zero capital outlay. You also have zero operational risk, as the responsibility for maintaining and servicing the solar system is borne by the provider. The solar power system will be owned by the provider until the end of the solar PPA term, when ownership transfers to your business.

Essentially, a solar PPA is a contract between your business and the provider to purchase renewable energy at a rate that is lower than buying it from the main electricity grid.

A power purchase agreement for solar is a great way to lock in a predictable, guaranteed low rate for electricity over a long period – typically 10-20 years.

How does a Solar PPA work?

It’s important to be aware that this arrangement covers your electricity costs for daytime power usage only. When the sun goes down, your business will have to purchase electricity from the grid – this will not be at the same low rate as the arrangement.

The rate for night-time grid electricity can be negotiated on your behalf by the provider or directly with the electricity retailer of your choice.

How long are Solar PPAs for?

The term length of most commercial solar PPAs ranges from 7 years to 30 years. However, both shorter and longer terms for this arrangement can be negotiated, depending on your business requirements.

What happens at the end of a solar PPA?

At the end of a commercial solar PPA, several scenarios can play out:

Take Ownership: One of the main pathways at the end of a PPA is for you to take ownership of the solar system. Depending on your PPA’s terms, you could either get it for free or for a pre-set price. If you choose this, you’ll handle the operation and upkeep of the system.

Renew Your PPA: If you’ve loved the benefits of solar without the hassle of ownership, you can simply renew the PPA. This way, you continue to enjoy solar energy without worrying about maintenance or upfront costs.

System Removal: If you decide not to continue and there’s no deal for you to own the system, the developer might take it down. However, considering the effort and resources they’ve invested, this isn’t a typical outcome.

Buy the System Outright: If it wasn’t an initial option in your PPA, you could negotiate to buy the solar system at its current market value.

Sell Excess Energy Back to the Grid: If you do take ownership and your system generates more electricity than you use, you can earn by selling this surplus back to the grid. The rates you’ll get, known as feed-in tariffs, vary across states and with different electricity retailers.

Consider a Maintenance Contract: If you decide to own the solar system, you can still have the original provider look after it. They might offer a maintenance contract, ensuring your system remains in top shape.

What types of businesses benefit from a solar PPA?

A wide range of businesses and organisations can benefit from this arrangement – for example, trade enterprises, schools, universities, and large electricity users of any type who like the idea of using a renewable energy source but don’t want to pay for a solar system outright.
A solar PPA agreement will appeal to businesses and organisations that:
● Want to enjoy lower energy bills and lock in their energy costs at a guaranteed low fixed rate
● Want to avoid the long-term risk of owning and operating a solar system
● Prefer an off-balance sheet asset
● Are committed to cutting their carbon footprint

What are the benefits of a solar PPA vs. buying the solar PPA panels outright?

Solar PPA (Power Purchase Agreement) Benefits

No Upfront Costs: One of the main benefits of a solar PPA is that there’s no need for a large upfront investment. The provider handles the cost of installing solar panels and setting up the system.

Predictable Rates: The PPA rate is predetermined and may either be fixed or escalate at a predictable rate over time. This can provide protection against volatile electricity prices.

Maintenance & Repairs: Maintenance and repairs are the responsibility of the solar system owner. This reduces the hassle and potential costs for the end-user.

Flexibility: At the end of the PPA term, a user can choose to renew the contract, purchase the system, or have it removed. This allows for flexibility based on evolving energy needs or financial situations.

Energy Savings: Businesses pay for the electricity generated at a rate that is lower than the standard grid rate.
Off-balance-sheet Financing: PPAs can be structured so that they don’t appear as debt on a company’s balance sheet, which can be advantageous for financial reporting.

Buying Solar Panels Outright Benefits

Ownership: One of the main benefits of purchasing a solar system outright is that you own the system. This can increase the value of the business.

Long-term Savings: While there’s an upfront cost, over the life of the system, the savings on electricity can surpass the initial investment, providing a solid return on investment.

Tax Incentives: Businesses that install solar can often take advantage of business solar rebates and other incentives, which can significantly reduce the effective cost of the system.

No Third-party Involvement: Without a third party, the owner has more control over the system, including decisions related to maintenance and potential upgrades.

Energy Independence: Owners can produce their own electricity, reducing dependence on the grid and protecting against potential rate hikes.

Renewable Energy With An Impact

At Kuga Electrical, we’ve built a reputation for being the leading solar distribution service to give you the electricity power you truly deserve. Our highly qualified team knows how important it is to prioritise our clients’ needs. Our competitive prices, top-tier quality of service, and state-of-the-art renewable systems make us stand out from the rest.

If you’d like to know more about our services, get in touch with us today to begin your conversion to renewable energy solutions!

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