In some of our previous posts, we’ve alluded to the benefits of a solar PPA: both as a way to provide more options for business owners wanting to go solar, and as a way of reducing costs in certain sectors. At this point, you may be convinced that solar finance is an affordable way to access green energy for your company, but you may have a few questions. In this blog, we explore the 5 most common questions about the most common form of solar finance, the solar power purchase agreement or PPA.
Why a PPA?
As we mentioned in the previous blog, a solar PPA usually enables an electricity consumer to utilise solar energy at a rate that is cheaper than the existing utility. In addition the ownership of the solar system remains with the PPA provider, and the user only pays for the electricity that they consume, rather than for the overall cost of the solar system – making it an affordable choice for several sectors. Below follow some of the most frequently asked questions about solar PPAs.
1) How long does a solar PPA last?
In fact, this question gets asked so often that we wrote an article about how long solar PPAs are already, and if you’d like a detailed answer to the question, have a look at that article. The summarised answer is, “it depends”. Whilst as a rule of thumb, the longer the PPA, the greater the immediate cost-savings will apply, many businesses prefer to enter into a shorter PPA period for a higher tariff, after which time the system ownership is transferred to the energy user. It all depends on the requirements of the client, as well as the overall objectives of the project.
2) Do I have to own the building to enter into a solar PPA?
PPAs ideally take place between a building owner and an energy provider, since the construction and ongoing maintenance, as well as energy distribution throughout the building, will require the building owner’s input and buy-in. However, if the building owner agrees to make the rooftop available for the solar system and the agreement takes the building and end user into account, tenants may be able to enter into a PPA.
3) If it isn’t sunny, do I still pay?
Depending on the type of PPA agreement you enter into, you shouldn’t have to pay if the system is not generating energy (take into consideration though, that even on cloudy days solar systems generate a good amount of power). However, the opposite does apply: if it is very sunny and producing more than what the building is consuming, the client may be liable for a minimum payment for the energy that is wasted, should it not be used. That is why it is essential to ensure that the system is sized correctly.
4)What happens at the end of the PPA?
Depending on the type of agreement, the system may transfer over to the client who then will take ownership of the solar system. This could work well if the building owner wishes to take ownership of the system after a period of time. However, there can also be “early exit” options, if the property owner is concerned that the building might be sold during the PPA term. Again, each situation is different, and when entering into a PPA it is best to check if the agreement contains provision to either buy the system, or to get the new building owner to assume the PPA, should the building be sold.
5)What is included in the PPA tariff?
Depending on the type of agreement you enter into, the tariff will include the costs of designing the system, procuring all necessary components, and constructing the system on the suitable rooftop or ground-mounted area so that the solar electricity is readily available for the client. The tariff also includes the costs of maintaining the system on an ongoing basis, such as cleaning and part replacement as needed. Typically, these combined costs will be similar, or less than utility based power when comparing on a per-kWh basis.
Are you interested in finding out more? Contact our solar finance department to learn more about our solar financing options.