The Upstream Blog

3 min read

Power Purchase Agreements vs Buying Solar Panels

Jun 19, 2020 2:08:34 PM

Can power purchase agreements (PPAs) for rooftop solar decrease Australia’s reliance on fossil fuels?

With the increasing popularity of solar energy, many individuals and businesses are weighing their options: invest in solar panels and get access to cheaper, cleaner energy - or keep using the grid to avoid the upfront investment involved with buying solar.

And this is where solar PPA providers came in. They can bridge this gap for those who seek green energy, without having to use their own funds. Solar PPAs are scalable - from homes up to big business - and are often the most economic form of power for various projects. Systems are bespoke, with small residential installations receiving just the right number of panels and large systems for bigger businesses using a similarly customised array.

So what is a PPA? It’s basically like having two electricity providers: the grid, and the solar panels on the roof. When the sun shines, you buy power from the panels and overnight it comes from the grid. Cloudy days will be a mixture of the two. Because the solar panels can generate the power on-site, it’s much cheaper as there are no network costs involved - so use as much during daylight hours as possible.

Some stakeholders and decision makers are hesitant, unsure whether to purchase the solar panels or go with a PPA provider instead. Here’s where we spell out the differences:

 

IS IT LIKE RENT-TO-BUY?

If you’re looking for a simple comparison, yes - a solar power purchase agreement is very similar to a ‘Rent-to-Buy’ model where you keep paying rent (the monthly energy bill) until the end of the agreement, after which you can choose to own the asset. 

But - there’s a major difference. Some solar PPAs account for all the generation each month (called “Production PPAs”) and are the same as a lease, loan or rent-to-buy option. If you can locate a Consumption PPAs, it’s a much better structure as you only pay for what you use (like your grid connection) and any excess flows to the grid. The best PPAs will have fixed rates for the term of agreement, so they’re a good way of hedging against price hikes in the future.

Any PPA worth its salt includes full ownership transfer to the customer when the agreement expires. With most panels having 25 year performance warranties, this is a great asset to acquire. 

 

CASHFLOW

When you sign a PPA, there is no upfront cost, so your precious capital is kept available for other investments. You get the benefit of going solar while still being free to invest in the growth of your business. 

The beauty of going with a PPA provider is that you would not have to worry about maintenance costs either, as this should be covered by the service provider. 

You will also benefit from the savings on your energy usage (charged by the kilowatt hour) since good solar PPAs charge 15% to 30% less per kWh than the grid. So, you start saving from day one. When solar rates are fixed and no maintenance fees have to be paid, you will be able to better estimate future costs and build business forecasts on a longer term. 

 

GOOD FOR BUSINESS

Electricity rates in Australia are some of the highest globally because our power grid is large and thinly spread across the country. For businesses or organisations with large roof space, the opportunity to reduce the cost of supporting the grid is significant. For businesses with larger power bills, who operate mostly during daylight hours, this opportunity is particularly attractive. 

It’s also nice to know that PPAs put the burden of designing and building the solar system on the provider, not you. So they are strongly incentivised to use good quality materials and installers - they only make money when they sell the electricity so they need to be sure it’s good. 



MAINTENANCE

Your power purchase agreement provider will want to keep the clean electricity flowing smoothly so most invest in regular maintenance. Some even set up alerts via smart meters so they know when system output dips and can send out a maintenance crew to fix the problem. 

This covers replacement of any components where necessary, such as inverters – which usually have a lifespan of about 10 years. 

 

SAVINGS

Since the PPAs offer better electricity rates than grid providers, you get immediate savings from the very first bill. Until batteries become more affordable, many PPA customers opt to stay connected to the grid to be absolutely sure they have a good power supply 24/7. 

 

CONCLUSION

Power Purchase Agreements (PPA) present a great way for home and business owners to switch to clean, solar electricity and receive all the benefits that the system has to offer - with guaranteed net savings from the first day of operation and without any upfront cost.

If you would like to discuss a potential PPA for your business, talk to the team at Upstream Energy today.

 

Tim Johnson
Written by Tim Johnson

Post a Comment

Featured