If you are considering the installation of solar PV panels on your premises, an outright purchase will return the greatest financial benefit. However, if you don’t have the capital, one of the financing options available is an onsite solar PPA.
What is a solar PPA and how does it work?
An onsite solar power purchase agreement (PPA) is an agreement between your business and a PPA provider.
Figure 1: Onsite solar power purchase agreement (solar PPA)
As per Figure 1 above, there are three parties to consider; your business, the PPA provider and your electricity retailer.
- PPA provider is the installer, owner, operator and maintainer of the solar PV on your premises. The PPA provider sells you the electricity generated from solar for an agreed price and duration, typically ten years. At that time there may be options for you to purchase the panels, for the PPA provider to remove them, to extend the agreement, or to renew a PPA agreement with a new system.
- Your business (purchaser, or off-taker) is the buyer of electricity from the solar panels on your premises. You buy this electricity for an agreed price, lower than your grid electricity price.
- Your electricity retailer continues to supply electricity from the grid, likely to cover most of your demand, and you will continue to receive a bill from them. Your retailer may agree to purchase excess solar energy generation for a feed-in-tariff. As a result, there will be two electricity bills, one from your PPA provider and one from your electricity retailer.
Free Download: Financing Options for Sustainability Projects
What are solar PPA benefits?
There are many advantages to procuring an onsite solar PPA, which include:
- No upfront cost – the PPA provider bears the costs associated with the purchase and installation of the solar panels.
- No on-going operation and maintenance costs – the PPA provider is responsible for operation and maintenance of the solar panels.
- Helps achieve environmental goals – you can use the electricity generated from the solar panels to reduce your carbon emissions or to meet your renewable energy targets.
- Lower cost of electricity – the solar PPA price should be lower than the cost of grid electricity and may include a process to confirm that this is the case and adjust over time.
- Monitoring of and guaranteed performance – the PPA provider monitors and may guarantee the performance of the solar panels as part of the agreement.
- Potential for expansion and battery storage – a PPA could potentially be expanded to include new solar panels and battery storage. Thus, savings from solar could grow over time with no capital outlay and continued cost savings compared with grid power prices.
What are solar PPA risks?
There are also potential risks associated with onsite solar PPAs, which include:
- More expensive over the life of the agreement – although there is minimal upfront cost for a solar PPA, the total cost over the life of the agreement will be higher than simply purchasing the system at the start.
- Duration of solar PPA – many PPAs are for 7 to 15 years, which may be longer than your business can commit unless there is long-term certainty of remaining at the same location.
- Expansion or change – future development adjacent to or on your facility, or to fixtures attached to your roof may alter the performance of or weaken the case for a solar PPA.
- Costs to make your property solar-ready – You may incur additional costs such as electrical works, cabling and roof repairs when installing solar panels.
- Quality of panels – you may have less choice in solar panel and inverter technologies under a PPA.
Panel of preferred solar PPA providers
Councils and government agencies can consider using solar PPA providers from the panel of preferred suppliers established by the NSW Government Office of Environment and Heritage (OEH). Support services offered by the NSW OEH include:
- a prequalified, carefully vetted panel of Solar PPA suppliers (currently six suppliers) and their contact details
- the Solar PPA Template Contract which can serve as a basis for your agreement
- ongoing support
- the Solar Financing Tool
- the Solar PPA Program brochure – a brief overview of the program
An agreement template can be found by contacting the OEH through their website.
Your own solar installation(s)
It can be difficult to know what solar PV systems to select and how to best finance them. If you would like to speak to a consultancy that is not tied to any product suppliers, please contact Barbara or Patrick. Here are five reasons why you should choose an independent consultancy.
Please note that we have developed a Financing Guide for Sustainability Projects, which you may find useful.
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