Power Purchase Agreements have become one of the most popular methods of realising the benefits of solar energy for power consumers.
A PPA allows your business to reap the benefits of clean energy through a solar PV system, without any financial outlay to preserve your capital.
What is a Solar Power Purchase Agreement (PPA)?
A PPA is fully funded solar PV model with no, or low, upfront costs which offers reduced energy costs and the opportunity for long term savings. It allows a developer to design, finance and install a solar PV system on a client’s property. In return, the developer sells the generated energy back to the customer, at a lower and better rate. The clients will benefit from reducing their carbon emissions, protected energy prices and the generation of their own green electricity. They will also save money overall on their energy bills due to buying from the developer in the PPA, rather than the grid. For the duration of the PPA, the developer is responsible for the operation and maintenance of the solar PV system. At the end of the contract, the client has various options; extend the PPA, remove the system or buy the system from the developer.
Tell me more?
- The PPA provider assesses the potential of your roof and provides a proposal demonstrating the financial savings and carbon footprint predictions.
- You agree to enter into a Power Purchase Agreement for 25 years and in doing so, agree to lease the airspace above your roof.
- The PPA provider will install the system, free of charge
- For approximately 25 years, you can enjoy reduced electricity bills whilst spending nothing on maintenance and operational costs
- After the agreement has ended, the system is transferred to you to enjoy free solar PV electricity for up to another 10 years.
Who is it for?
A PPA is ideal for:
- An organisation owning their premises, or with a long-term lease.
- With at least 600m2 of roof space able to accommodate a system of 50kWp (approx. 200 panels) or more.
- With a reasonable electricity usage, a half-hourly electricity meter and an Energy Performance Certificate (EPC)
- With a good credit rating and sustainable long-term outlook
What are the benefits of PPAs?
- Immediate savings on electricity bills – Solar electricity is purchased at a much cheaper rate from the developer than the current provider
- Zero upfront costs – The developer covers 100% of the costs involved
- No maintenance – Included in the PPA is a long-term operation and maintenance contract. This also included insurance cover which is covered by the developer
- Fully transferable – Should you move premises, the PPA can be transferred to the new occupants of the property.
- Reduced tax burden – companies who own a solar installation are subject to significant tax increases. With a PPA, these rates don’t apply as the system is owned by the investors, not the business itself
How viable are Solar PPAs as a long-term business model?
PPAs offer long-term protection and forecasting. The unit price you pay for electricity generated by the solar PV system will only rise in line with RPI. This means hikes in prices by energy providers make no difference to your business, meaning you can budget more effectively and accurately. Most PPAs run for 25 years but some start at 10. By choosing the length best suited for you, you can align your energy savings with your long-term business plan.
PPAs also give your business green credentials. By being part of a power purchase agreement, you’re future proofing your business by improving your company’s environmental responsibility. From a customer point of view, this will only enhance relationships. Not only with customers but current and prospective staff and suppliers.
Should I buy a solar PV system or enter into a Power Purchase Agreement?
From a business point of view, a PPA could be a better option. This is because they will not have to pay the increasing tax rates on the system, as they don’t own the asset. Furthermore, the system is maintained and managed by the developer, leaving no responsibility for the client. Many organisations don’t appreciate the input required to maintain a solar PV system, meaning PPAs give maximum performance, minimum effort on the company’s behalf, and peace of mind for the future.
On the other hand, purchasing a solar PV system outright will provide a return on investment faster than a PPA funded system.