What Is a Solar PPA?
A Solar Power Purchase Agreement (PPA) is a financing arrangement that allows your business to access solar energy without owning the solar system. Under a PPA, a third-party provider installs and owns the solar panels on your property, and your business pays only for the electricity generated by the system. This eliminates the upfront costs of installation while providing access to clean, renewable energy. PPA contracts typically last 10 to 25 years, depending on the agreement, offering long-term energy savings without the need for system ownership.
How Does a Solar PPA Work?
With a solar PPA, your business doesn’t purchase or lease the solar panels. Instead, the provider owns, installs, and maintains the system. Your business is only responsible for paying for the electricity the panels produce, usually at a rate lower than traditional utility prices. Payments are based on actual energy output, tracked through a meter.
If the panels produce more electricity than your business consumes, you may be eligible for energy credits under net metering, depending on your utility’s policies and the terms of your agreement. On the other hand, if the panels don’t generate enough energy to meet your needs, your business can rely on the utility grid to make up the difference, resulting in two bills—one from the PPA provider and one from your utility.
How Much Can You Save With a Solar PPA?
While savings vary based on factors such as your energy consumption, the agreed PPA rate, and the system’s output, most businesses benefit from lower energy costs compared to utility rates. PPAs are typically structured to ensure cost savings from day one. However, since utility rates can fluctuate, it’s essential to review the terms carefully and compare offers from multiple providers to maximise savings. Consulting with experienced providers can help your business secure a deal that aligns with its financial and energy goals.
Solar PPA Pros and Cons
Choosing a solar PPA can be a difficult decision, but here are some pros and cons to consider:
Pros
- No Upfront Costs: UrbanVolt covers the entire cost of installing and maintaining the solar system, so your business can enjoy clean energy without any capital investment.
- Guaranteed Maintenance and Support: We handle all system upkeep and repairs, ensuring optimal performance without adding to your team’s workload.
- Immediate Savings on Energy Bills: With a competitive fixed energy rate, you start saving from day one, while also reducing your carbon footprint.
Cons
- While you benefit from clean energy without upfront costs, the solar system remains our asset, meaning you won’t own the panels or directly access tax incentives.
- A solar PPA involves a fixed agreement period, which might feel restrictive if your business’s energy needs or location changes significantly over time.
Solar PPA vs. Leasing
When considering solar energy solutions, businesses often compare Solar PPAs with leasing. Both options allow companies to access solar energy without the high upfront costs of purchasing a system, but they operate differently. With a solar PPA, the business pays only for the energy generated at a predetermined rate, while the provider owns, installs, and maintains the system.
In contrast, leasing involves paying a fixed monthly fee to use the solar panels, regardless of the energy produced. PPAs can offer more predictable savings since payments are tied to actual energy usage, while leasing provides consistency in costs but might not align with fluctuating energy needs.
Both models shift the responsibility for system maintenance to the provider, making them appealing to businesses looking to simplify the transition to renewable energy without direct ownership. The choice often comes down to a company’s financial goals and energy consumption patterns.
Things to Consider Before Entering a Solar PPA
Before entering a Solar PPA, businesses should carefully evaluate several key factors to ensure it aligns with their goals and needs.
- First, understand the contract’s duration and flexibility—PPAs typically span 10 to 25 years, so assess whether your business’s energy requirements or location might change over time.
- Review the energy rate structure, including any escalators, to confirm the agreement delivers long-term savings compared to current and projected utility rates.
- Investigate the provider’s reputation, reliability, and maintenance guarantees to ensure consistent system performance and support.
- Additionally, consider the potential limitations of not owning the solar system, such as missing out on tax incentives or asset appreciation.
- Finally, consult legal and financial experts to carefully examine termination clauses, potential penalties, and the financial impact of committing to a PPA. These steps will help your business make an informed decision and maximise the benefits of transitioning to solar energy.
Is a Solar PPA Right for You?
Determining if a Solar PPA is the right choice for your business depends on your financial goals, energy needs, and long-term plans. If you’re looking to reduce energy costs, embrace sustainability, and avoid the upfront expense and maintenance of owning a solar system, a PPA offers an accessible and hassle-free solution. However, it’s essential to carefully review the terms, including contract length, rate structures, and flexibility, to ensure the agreement aligns with your business’s operations and future growth. By partnering with a trusted provider and doing your due diligence, a solar PPA can be a powerful step toward lowering costs and achieving your sustainability objectives without the complexities of ownership.