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 PPA||Outright purchase of our renewable energy system|
|Use of capital||No capital outlay||Significant capital outlay|
|Financial reporting||Off-balance sheet||On-balance sheet|
|Payback period||Instant||Measured in years|
|Electricity bill savings||Variable|
|Predictable rate for daytime electricity||Yes||No|
|System maintenance||Responsibility of the provider||Responsibility of system owner|
|System monitoring||Responsibility of the provider||Responsibility of system owner|
|System cleaning||Responsibility of the provider||Responsibility of system owner|
|Risk of system failure||Borne by the provider||Borne by the system owner|
|Insurance of renewable system||Responsibility of the provider||Responsibility of system owner|
|Liability for any damage caused by system malfunctioning||Responsibility of the provider||Responsibility of system owner|
|Inverter replacement after 10 years (approx.)||Cost covered by the provider||Cost incurred by system owner|
|Amount of power generated by solar system||Fully guaranteed||Not guaranteed|
|Price per kilowatt hour of electricity||During sunshine hours:|
|During sunshine hours:|
|Main electricity grid is back-up power supply||Yes||Yes|
|Administration / staff time||No staff time required to maintain system – this is carried out by solar PPA provider||Staff time required to:|
|Reduction in business’s carbon footprint||Yes||Yes|
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 for||What to avoid|
|Own system outright at end of the arrangement period – without any additional payments||Balloon 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.
|Production-based PPA pricing structure|
|Fixed price or CPI linked||CPI linked|
|Term of Solar PPA||Don’t accept a PPA term that doesn’t fit your business|
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:
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.
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!