What is a Power Purchase Agreement (PPA)?
Power purchase agreements (PPAs) are, essentially, legal agreements between an provider and a purchaser for the supply and sale of energy. These are increasingly being used for the supply of solar power to businesses that want to take advantage of the benefits of having an onsite solar array without the need to purchase a system.
In the role of purchaser, businesses entering into commercial solar power purchase agreements contribute onsite space (typically, rooftops) for the mounting of solar panels. Their PPA provider takes on full financial responsibility for the solar system, including its installation and maintenance, and retains ownership of it. The purchaser buys electricity generated by this system from the provider, at agreed rates for an agreed timespan.
Why enter into a PPA?
By entering into a solar PPA, your business can enjoy benefits of an onsite system, such as lower energy bills, reduced exposure to energy price volatility, green brand benefits and more - all without having to invest your own funds in the solar infrastructure.
In short, there is no upfront capital required from your business.
This is because your PPA provider owns and maintains the solar PV system on your rooftop. As the owner, your PPA provider will also take care of all operational and maintenance costs associated with the system. This translates to virtually no financial risk for your business.
As an alternative to buying a solar system, a PPA frees up capital to invest in other energy-efficient technologies like LED lighting. Working in tandem with a solar system, improvements of this kind can further reduce your month-to-month energy expenditure and reliance on the grid. Such a strategy can make limited capital go further.
What’s involved for businesses?
For businesses, entering into a PPA involves legally agreeing to purchase electricity generated by the system at a set rate for a given period of time.
Cherry Energy partners with Ovida to offer the Cherry Solar PPA to our customers. We begin by assessing factors that may affect the details of your PPA, such as your electricity consumption patterns, existing electrical infrastructure and available rooftop space. We can then recommend the right system for your building’s needs and provide pricing options for your PPA. Once your agreement is drawn up, we’ll project manage the system installation.
The commercial solar system will incorporate a meter for the electricity it generates, separate to your grid electricity meter.
When you start using the solar system, you’ll receive a monthly invoice for the energy you draw from it. Your monthly solar energy bill, combined with your bill for any supplementary grid energy, will typically be significantly less in total than what you would pay if your energy was coming exclusively from the grid.
You aren’t liable for any repayments on the cost of the system, installation or maintenance - you only pay for the energy you’re using, at the agreed rate set out in your PPA.
Commercial PPA Case Study
A client in South Australia was interested in installing solar to combat 21c/kWh electricity charges but were short on capital after building a new warehouse.
Some businesses do have the capital and capacity to own their rooftop solar system themselves and may benefit from lower energy costs in the long run. In those cases, this may be the better choice - it all depends on the business’ long and short term financial situation.
It’s worth noting that...
PPAs involve the professional services of the provider being factored into your electricity bill. Even so, your expenditure will typically be less than what you were previously paying for 100% grid electricity. Depending on circumstances, though, it may eventually be possible to generate greater savings on month-to-month operational costs when your business has ownership of its solar system.
It is, however, possible to include a clause allowing transfer of contract when setting up your PPA. After your agreed PPA term, you can purchase the system from Ovida for $1.
Buying the system directly has the benefit of acting as an investment that you have full control over. This means that if you sell your commercial building, you’re able to sell the solar system along with it. You can’t do this under a PPA due to the system being externally owned. It is, however, possible to include a clause allowing transfer of contract when setting up your PPA.
Cherry Energy can assist with comprehensive assessments, pricing comparisons, and commercial solar finance options to help you arrive at the right decision for your business.
Want to know more?
Reimagine energy with Cherry. We’ll help you navigate the options for introducing commercial solar into your business. Contact our friendly team today to get started.
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