A solar power purchase agreement (PPA) is a financing model for solar panels that allows the business to reap the benefits of solar panels with minimal upfront cost. The solar PPA provider is typically responsible for the establishment of the panels. This process includes permitting, design and the installation. The financing method is obtained from a cost-per-kilowatt derived from the solar output and kilowatts needed. Generally, the per-kilowatt price obtained is lower than the cost from utility providers, saving at least one month's worth of the total energy bill. The lifespan of a solar PPA is between 10-20 years, with most maintenance being done by the provider. Overall, a solar PPA can be seen as a beneficial venture, with the notable benefits being listed below.
Upfront Cost Reductions
A major benefit of a solar PPA is that it has minimal to no upfront cost. This is beneficial to a business as it requires very minimal initial investment from their perspective. Furthermore, as the payback period is reduced, the business can reap the rewards of the solar panels immediately rather than waiting years for the panels to pay themselves off. At the end of the contracted agreement, the agreement may be extended, the panels can be removed, or they may be bought out from the provider.
Low Input and Maintenance Costs From Business’s End
Another key benefit of solar PPAs is that the onus is on the provider to ensure everything functions and operates. As a result of this, pressure is alleviated from the business as their involvement is minimised and the financial burden reduced. Solar panel maintenance is normal for any array, however, the financial burden and time taken may be high. With a solar PPA, maintenance procedures that are typically done will be organised by your provider. These procedures involve cleaning, inverter replacements and technical troubleshooting. Cleaning especially is a very important process. Solar panels with dust or debris covering the surface will result in a reduced solar yield, thus reducing both the efficiency and efficacy of the system. Therefore, scheduled maintenance organised by the provider will ensure that your solar panels are functioning optimally. Ultimately, with functionality being the priority of the provider, businesses will save time and capital as they do not need to tend to the array themselves.
Additionally, the expected result from solar panels will be to save on electricity costs which will be achieved through a solar PPA. The electricity produced by the system will be given at a cost-basis lower than what main grid utility providers may offer. Furthermore, electricity costs are often fluctuating nationwide as a result of changing market conditions. Therefore, it may be beneficial to customers to choose a solar PPA in order to be shielded from price fluctuations. The rate at which electricity has increased can be seen below.
(Figure 1. Australian Bureau of Statistics (2019c) Consumer Price Index, Australia, June 2019, 6401.1)
Reduction in Carbon Footprint
Using a renewable energy system as a means to generate electricity allows for the business to reduce their carbon footprint. With the world slowly becoming eco-centric, being ahead of the curve allows for the business to not rush when searching for options. Furthermore, operating on renewable energy serves as a marketing opportunity and allows passageways to access socially conscious customers that are typically inaccessible. Given the very real threat of climate change in the future, it is important that we all consider our practices. Choosing a solar energy system allows all of us to play our parts in striving for a greener future.
Another thing to note is that legislation on businesses regarding their carbon output is rapidly changing. For example, businesses that export to Europe may be subject to the Carbon Border Adjustment Mechanism. (CBAM). The CBAM will tax the carbon output that is required to produce goods and services if it is not priced in. In Australia, this is not the case meaning an additional tax is to be paid by businesses exporting to Europe. Therefore, the best course of action in order to prevent additional fees, is to operate with minimal carbon output. In order to achieve this businesses can look towards installing solar arrays and incorporating various ‘clean’ practices.
To conclude, it is beneficial for businesses to establish a solar power purchase agreement as it leads to immense cost savings over time. Furthermore, the lack of initial cost and the minimal impact on cash flows make these agreements very attractive due to the immediate savings present. Most importantly, the savings to our environment will be priceless making solar an attractive option for all businesses. Solar PPAs allow businesses that may not want to pay the initial investment to play their role in the betterment of the environment and our ecosystem.
Australian Bureau of Statistics (2019c) Consumer Price Index, Australia, June 2019, cat. no. 6401.1, Canberra
Dumitru, A, et al (2021). The Carbon Border Adjustment Mechanism Explained. [Online] Available at: https://economics.rabobank.com/publications/2021/july/cbam-carbon-border-adjustment-mechanism-eu-explained/
Energy Gov (2019). Australian Energy Statistics 2019. [Online] Available at: https://www.energy.gov.au/sites/default/files/australian_energy_statistics_2019_energy_update_report_september.pdf. 24-26.
Hussain, A., Batra, A. & Pachauri, R. An experimental study on effect of dust on power loss in solar photovoltaic module. Renewables4, 9 (2017). https://doi.org/10.1186/s40807-017-0043-y
King, R. (2021). Rooftop solar produces clean energy but most panels end up in landfill despite being recyclable. [Online] Available at: https://www.abc.net.au/news/2021-06-06/what-happens-to-solar-panels-after-their-useful-life-is-over/100193244
SEIA.ORG (N.D). Solar Power Purchase Agreements. [Online] Available at: https://www.seia.org/research-resources/solar-power-purchase-agreements