In this article we cover how Power Purchase Agreements work and their benefits.
How PPAs work?
PPAs are a fantastic way of financing the installation of solar systems and helping businesses save money on their electricity bills.
PPAs typically work as follows:
- A business has a large roof space not impacted by shading (for example, by other large buildings or trees) and significant day time energy use
- Electricity prices are rising (significantly!) and the business is interested in solar to reduce their energy bills
- The business can either pay for the cost of the solar system upfront, or speak to Voltaic about entering into a PPA
- Enter Voltaic – Voltaic enters into an agreement with the installer and pays for the installation of the solar system. Voltaic owns the solar system and sells the electricity to the business
- Voltaic sells the electricity at a much cheaper rate than the business otherwise pays through their energy supplier
- When the sun is shining, the business is buying its electricity from the solar system. When the sun is not shining, the business is buying it as usual through its energy provider
People might ask, why wouldn’t the business pay for the solar system? PPAs are a wonderful solution for businesses that either do not have the upfront cash to invest in a solar system, or would prefer to spend their core capital on other parts of their business.
The contracts
There are three main contracts:
- Installation agreement – between Voltaic and the installer
- The Power Purchase Agreement – between Voltaic and the business
- Access Agreement – between Voltaic and the land owner
The PPA is a long-term contract. PPAs are usually entered for 10 or more years. We cover more information in Power Purchase Agreements: The Details, but to summarise here businesses need to understand the long term nature of the agreements. This then raises the question – what happens if the business leaves during the term of the agreement? There are three options: the business can transfer the agreement to a new tenant, the business can transfer the solar system to its new premises or the business can buy the solar system from Voltaic. Voltaic has worked with its lawyers to make the PPA terms as friendly and flexible as possible.
The benefits of PPAs
If the business used all its electricity from the solar system and pays half the electricity rate, it stands to save 50% on its electricity bills without any upfront payment. Unfortunately it’s not quite that simple, as solar systems only generate electricity when the sun shines, so it’s unlikely all electricity will come from the solar system. Savings depend on the location of the business and energy usage during the day. Savings are greater where there is more sunshine and when the business uses most of its energy during the day, as opposed to early morning or night time
The benefits are clear – businesses can make significant savings on their electricity bills without spending a dollar.
Further reading:
Power Purchase Agreements: The Details