Solar PPA | Commercial Solar Power Purchase Agreement

Power Purchase Agreement For Solar

A Power Purchase Agreement For Solar is a long-term contract to purchase the electricity that is generated by these solar PPA panels installed on your premises. This arrangement is made between a retailer (or generator) and a purchaser (or off-taker) for the purchase of electricity. Electricity is generated by the PV system and is charged at a kWh rate 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. This consensus has no upfront cost, however, the purchaser needs to buy the kWh as agreed in the PPA agreement.

Solar PPA Agreement is suitable for:

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Below, we’ve provided a list of Frequently Asked Questions (FAQs) to answer all your queries regarding our services.

Are Solar PPA 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 renewable system is borne by the provider. This renewable system installed at your premises 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.

Advantages of a Solar Power Purchase Agreement

There are many advantages of setting up a renewable energy arrangement for your business, including

  • Zero upfront cost
  • 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

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 renewable energy but don’t want to pay anything upfront.

A solar PPA agreement will appeal to businesses and organisations that:

  • Want to lock in their energy costs at a guaranteed low fixed rate.
  • Want to avoid the long-term risk of owning and operating a renewable system.
  • Prefer an off-balance sheet asset.
  • Are committed to cutting their carbon footprint.

Business Benefits of a solar PPA vs buying the solar PPA panels outright

Here’s a comparison of the plus points of a solar PPA agreement compared to the outright purchase of a renewable system.

 Solar PPAOutright purchase of our renewable energy system
Upfront costZero$,000’s
Use of capitalNo capital outlay


  • Frees up capital for other business expenses and investments

Significant capital outlay


  • Typically $1,000 / kilowatt installed.

Financial reportingOff-balance sheet

  • No impact on business’s reported numbers and ratios

  • No impact on business’s borrowing capacity

On-balance sheet

  • Reduces business’s borrowing capacity

Payback periodInstantMeasured in years
Electricity bill savings
  • Instant – from day 1



 
Variable

  • Depends on the percentage of renewable energy consumed by the business

Predictable rate for daytime electricityYes

  • Rate is guaranteed



 
No

  • Depends on the percentage of renewable energy consumed by the business and electricity retailer’s tariff

System maintenance Responsibility of the providerResponsibility of system owner
System monitoringResponsibility of the provider
Responsibility of system owner

 
System cleaningResponsibility of the provider
Responsibility of system owner
Risk of system failureBorne by the providerBorne by the system owner
Insurance of renewable system


 
Responsibility of the providerResponsibility of system owner
Liability for any damage caused by system malfunctioningResponsibility of the providerResponsibility of system owner
Inverter replacement after 10 years (approx.)Cost covered by the providerCost incurred by system owner
Amount of power generated by solar system Fully guaranteed

  • Guaranteed price per kilowatt hour for electricity purchased via the arrangement

Not guaranteed

  • Unless negotiated, there is no guarantee of system performance

Price per kilowatt hour of electricityDuring sunshine hours:

  • Guaranteed lower price/kWh of electricity purchased through the solar PPA in comparison to grid electricity rates

 

Night-time:

  • Purchase electricity from the grid at the rates negotiated with your electricity provider

During sunshine hours:

  • Renewable energy that’s used by the business at the point in time when it is generated will be free

  • If the renewable system does not generate enough electricity to meet the business’s daytime power requirements, the business will pay grid electricity rates
 

Night-time:

  • Purchase electricity from the grid at the rates negotiated with your electricity provider
Main electricity grid is back-up power supply

 
YesYes
Administration / staff timeNo staff time required to maintain system – this is carried out by solar PPA providerStaff time required to:

  • Monitor system performance/bill savings

  • Organize system maintenance and warranty claims
Reduction in business’s carbon footprintYesYes

How to get a solar PPA that’s right for your business

There are a few potential pitfalls to avoid when negotiating a power purchase agreement for solar to your business.
Here’s a summary of what to watch out:

What to negotiate forWhat to avoid
Own system outright at end of the arrangement period – without any additional paymentsBalloon payment – i.e. a final payment at the end of the arrangement term. It’s like paying for the system twice.
Insist on a consumption-based pricing structure – not a production-based structure.

Consumption-based means paying only for the renewable energy you use in your business. This puts the onus on the provider not to oversize the system.


  • Consumption-based means paying only for the renewable energy you use in your business. This puts the onus on the provider not to oversize the system.
Production-based PPA pricing structure

  • This is where your business pays for all renewable energy generated regardless of whether it’s used in the business.


  • With this pricing structure, there’s a risk that the solar PPA provider may install more than what you need.
Fixed price or CPI linked

  • If guaranteed locked in energy pricing is important, ask for a fixed price arrangement
CPI linked

  • Exposes the business to the risk of inflation
Term of Solar PPA

  • Solar PPA terms are not set in stone. Negotiate the term of term arrangement that suits your business.


  • A shorter term (say 3-5 years) will reduce upfront savings, but you’ll own the system quicker
Don’t accept a PPA term that doesn’t fit your business

  • No need to accept a 20 or 30 year term if that’s not right for your business


  • However, longer arrangements generally come with lower price per kilowatt hour and mean you don’t have to worry about system maintenance

Solar PPAs Versus Getting A Lease

There are many similarities between solar PPA agreement and leases; basically they are just different forms of financing.

The main differences are:

Pricing

With this lease, you pay a flat monthly fee for the renewable system which should be less than what you were paying on your monthly electricity bills. For example, if your business was 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 by your PPA solar panels (although you can sometimes negotiate these arrangements where the price you pay per kilowatt hour is based on consumption, not production). 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, the overall consensus should be for less than this amount.

Duration

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

Which financing option is right for your business?

How do you work out which is right for you – a solar PPA or a lease?

With years of experience in commercial solar PPA financing, we have the skills and expertise to find the best renewable option for your business.

Start the ball rolling. Talks to our team of experts about how to cut your electricity costs with a renewable financing solution that’s cashflow positive from day 1.

Renewable Energy With An Impact

At 13 Kuga, 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 first and foremost 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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