For business owners considering going solar, a Power Purchase Agreement (PPA) can offer an innovative way to access renewable energy, without taking on any major upfront costs, liabilities, or maintenance.
PPAs are designed to make solar more attractive for businesses. In return, they help drive growth in the solar industry, ensuring solar providers (including those investing in solar farms) have customers on the books, shoring up their investment security.
With PPAs becoming more popular across Australia, we wanted to share the key benefits in more depth, and why a Power Purchase Agreement may make financial and commercial sense for your business.
What is a solar Power Purchase Agreement (PPA)?
A solar Power Purchase Agreement (PPA) is a contract where a business agrees to buy solar energy for an agreed time period in return for the solar provider (or a third party) installing and maintaining the panels—either onsite or offsite.
In Australia, these agreements come in three main forms:
Behind the Meter PPAs
These are the most popular PPAs—and also referred to as ‘Onsite PPAs’—where a solar energy provider will install a solar array on your commercial premises and then retain ownership of the system. As the business or property owner, you’re only responsible for paying for the energy you use (and/or produce), which helps reduce your power bills while avoiding expensive installation costs.
Behind the Meter PPAs are popular with small-to-medium sized businesses who have space on their property to install enough solar panels for their own use. However, you may still need a connection to the grid for backup, especially if you need a lot of power during the evenings.
Commercial PPAs—also known as ‘front of the meter PPAs’—are more popular with larger businesses who need significant amounts of energy. In a Commercial PPA agreement, your business would source energy directly from a solar farm—which is an attractive option for those who want renewable energy, but don’t have the space on premise (or the cash flow) to install such a large array.
These are the agreements that also make the most sense for large solar providers. It ensures they have customers signed up before their solar farms are built, helping attract investment and making their businesses viable once operational.
The third option, Retail-sleeved PPAs, are similar to Commercial PPAs but with an added layer of complexity. As a business owner you buy energy from a third party—a solar retailer—who acts as an intermediary between you and the solar farm, and then facilitates the electricity’s delivery to your premises.
The attractive aspect of Retail-sleeved agreements is that you enter into a fixed price contract over a long time period (usually over seven or eight years). The retailer takes the hit on energy price fluctuations in return for you committing to a long contract. A potential downside, however, is the complexity of having an additional party to work with—and any added management fees they tack on.
The benefits of Solar Power Purchase Agreements
PPAs allow your business to go solar without the upfront costs, making them a safer bet for your cash flow, and therefore offering more security for your bottom line.
PPA pricing structures drastically differ, meaning there are plenty of options to best suit your needs. Some Behind the Meter agreements will charge you for all of the solar generated, while others only charge for what you use. This then determines how much you can benefit from government feed-in tariffs. Retail-sleeved and commercial PPAs usually offer the fixed price we mentioned (but check the small print for pricing that adjusts for inflation).
We should be clear that PPAs aren’t leases or loans to buy solar panels, but an agreement to buy renewable energy. As such, your energy costs remain an operational expense and therefore come with tax benefits.
While there are green incentives (such as tax credits and subsidies) to install solar panels, you as a business are unlikely to receive any of these tax credits or rebates directly. It’s more common for the solar provider who owns the system to receive these benefits, who then pass the benefits on to you in in the form of cheaper rates in order to remain competitive in the marketplace.
No maintenance responsibility
Usually an afterthought, but maintenance costs can creep for business owners who install solar panels—particularly those who opt for cheap panels and run into problems later down the line.
PPAs put the responsibility for solar panel maintenance on the providers, rather than on you as the business owner. So, there’s an onus to install decent quality systems, while you don’t need to train or hire dedicated staff because your solar company’s maintenance teams will take care of issues—reducing your costs while providing top class workmanship.
Long term ownership of the solar system
Depending on your PPA contract, there may be an opportunity to take ownership of the solar panels once your contract ends. This means that you can benefit from solar energy for the lifetime of the panels and inverters (and their warranties) which usually last between 20-30 years—a good 10 years beyond a typical 10 year PPA contract. This, of course, is only applicable to On-site/Behind the Meter PPAs.
A common concern over any solar energy agreement is contract length. Fortunately, similar to the PPA pricing structures, there are also plenty of contract options to choose from.
Entering into a Commercial PPA, especially for larger operations, usually requires a commitment of at least seven years—but as previously mentioned, you benefit from the fixed term pricing. Smaller Behind the Meter PPAs are often more flexible, recognizing that businesses rent or lease their premises for shorter terms and don’t want to keep paying for a PPA contract if they move shop. Solar providers recognize this and will often provide contact options that make sense for your business.
Why solar Purchase Power Agreements make business sense
Solar PPAs make great sense for Australian business owners who want to make the switch to renewable energy, without the upfront costs or ongoing maintenance—and if they don’t own their building outright. There are PPA contract types, lengths, and prices available to meet almost all circumstances, offering a great opportunity to cut your energy costs, make greener steps for your business, and commit to a financially and environmentally sustainable future.
To learn more about purchasing solar panels, solar batteries, and our range of high-performance inverters, contact Renew Energy today. Our expert team is happy to advise on the best solar panel system for your needs and can give you more information on which PPA agreement may be best for you.