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Commercial Solar Power Purchase Agreements: What You Need to Know

Aug 17, 2020 4:31:38 PM

More and more businesses across Australia are discovering they can access low cost solar electricity with zero investment via power purchase agreements. So we’ve been getting a lot of questions about how this model works and whether it will work for all businesses.

As a leading rooftop solar PPA provider in Australia, we have put together everything a business owner needs to know about rooftop solar power purchase agreements.

 

How and why does a business lease its roof?

A power purchase agreement is quite simple. The PPA provider agrees to fund, insure and maintain a rooftop solar system, and sell the energy produced to the building occupants. 

The customer agrees to purchase that electricity for a fixed term, at a fixed price.

To facilitate all this, the PPA provider will sometimes pay a building owner a lease in order to use the roof space required.

Who becomes the “Landlord” and who is the “Tenant”?

The party purchasing electricity in a rooftop solar power purchase agreement can be either the building owner, or a tenant. 

At the end of the agreement, ownership of the agreement can pass to either of them, although it generally goes to the building owner - a great incentive for them to enter the agreement.

If electricity companies increase their prices during the contract term, will PPA rate increase?

Some PPA providers increase the rate they charge each month to account for inflation. But some do not. The best providers offer a fixed rate that is set for the full term of the agreement. 

Many customers request a longer agreement to lengthen the time they enjoy fixed low rates as a hedge against inflation. 

With longer agreements, they’ll also avoid having to insure or maintain the systems - a very attractive proposition for those who don’t have time to invest in maintenance or fixing problems.

Also, the longer the agreement, the lower the monthly prices will generally be. 

 

What happens if the business ceases to trade for any reason during the term of the PPA?

Perhaps the most common question asked by tenants is “but what if we move buildings?”. 

There are a number of options. 

A PPA can simply be passed on to an incoming tenant, or to the property owner. 

Otherwise, a tenant can take the system with them - the cost of taking it down and installing it at a new location can be added to a fresh PPA which can simply be extended by a year or two, to avoid any capital cost.

If these options aren’t available, there is usually an early exit charge. Good PPA providers will set this at a level that just covers their costs - rather than a large profit - so it’s worth investigating this. 

 

What about my business insurance?

The PPA provider owns the system during the term of the agreement and is therefore responsible for insuring the solar panels.

What is covered under the PPA provider’s insurance?

Any performance degradation or failure will be rectified with both proactive and reactive maintenance or replacement for the duration of the agreement. Customers can also rest easy knowing that the PPA provider is heavily invested in the performance of the asset - if it’s not generating power then they are losing income. The system is also covered for storm damage, vandalism & theft.

Will the business receive any rebates or other government incentives?

Good PPA providers will take advantage of any rebates or incentives (particularly STCs or LGCs) and pass on the benefits to their customers in the form of lower prices.

What if the business’ consumption increases?

There are two types of rooftop solar PPAs; Production and Consumption. A Production PPA requires the energy buyer to pay for the amount of electricity produced each month, whether they use it or not. A Consumption PPA asks the buyer to pay only for what they consume - which is good for seasonality, customers who suffer tough times and have to reduce operations, and also customers who invest in reducing their consumption efficiencies like lighting or heating / cooling improvements, etc.

If the premise is mortgaged, does it make a difference?

During the term, the solar system does not constitute a fixture or fitting and therefore, in the vast majority of instances, will not require approval by the mortgagee. In rare cases and if this is required, good PPA providers will handle this request on behalf of the landlord.

If you have any other questions or would like to discuss how your business can benefit from a solar PPA, get in touch with the team at Upstream Energy today.

 

Tim Johnson
Written by Tim Johnson

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