Power purchase agreements are an excellent method for solar energy to reach the mass market. The agreement gives electricity consumers access to clean and economical solar energy while providing renewable energy producers an easy way to break into the market. A solar power purchase agreement (PPA) allows you to rent a solar panel from a company rather than buying and installing it yourself.
What is a Solar Power Purchase Agreement (PPA)?
A solar power purchase agreement, also known as a solar PPA, is a long-term electricity supply contract that commonly lasts around 10 to 25 years. The contract is agreed upon by a power producer and an electricity consumer. They mutually agree to buy and sell a certain amount of energy generated by a renewable asset.
In the case of solar power purchase agreements, the renewable asset is the sun – an inexhaustible and highly affordable source of energy. The contract follows a similar format to a wind PPA except it has a lower profile risk than a wind farm because the sun does not produce energy during the evening when it is down. This makes the amount of clean energy that solar power plants produce more predictable and quantifiable.
What is a Solar Power Purchase Agreement Used For?
With climate change and carbon emissions becoming a more pressing concern, solar power purchase agreements promote clean, renewable energy and a greener future. It is the people’s responsibility to take care of their planet, and solar PPAs are simply one of the latest efforts to help that movement on a larger scale.
Thanks to technology and its fast pace of growth, power assets that produce renewable energy have seen significant development in their production. This has helped energy materials such as solar panels become much more affordable to build, making renewable energy products such as solar arrays and solar panels more accessible. The result has been a surge of interest in commercial solar installation companies such as Constant Energy.
What are the Benefits of a Solar PPA?
There are many benefits to having a solar power purchase agreement. Other than being one of the most affordable forms of renewable energy long-term, installing solar panels on the rooftop of your factory, a solar PPA also delivers a more stable and upwards-projecting revenue certainty compared to other alternative energy resources.
A commercial solar PPA also offers businesses the opportunity to finance more renewable energy projects, propelling the growth and popularity of alternative energy resources to support the movement to lower carbon emissions. It is an electricity contract that mutually benefits both parties.
To put it simply, commercial solar offers corporations the opportunity to test whether solar energy is the best solution for them at zero-investment cost before considering whether they should invest in the total cost of solar panels and the installation of the rooftop solar power plant:
For an electricity consumer,
- it guarantees fixed long-term electricity costs that are more affordable
- contributes to the lessening of carbon emissions
- makes their brand positioning and perception more sustainable and green
- saves from the high investment cost of solar panels that need to be replaced every 20-25 years
For the energy producer,
- it provides revenue certainty as a fixed amount of energy has been sold at an agreed-upon price
What is the Process of Getting a Solar PPA?
The first step to getting a solar PPA is to connect with a renewable energy business. Constant Energy is a renewable electricity generation and storage investment platform that invests in and manages high-quality power assets in selected countries in Southeast Asia. They are a company known for developing projects on a fast-track development basis and can design a project and supply a property with energy in just 3 to 6 months.
Once you contact a renewable energy supplier, the next step is to determine the structure of the electricity contract, also known as the solar PPA. During this step of the process, the parties agree upon the price for the electricity as well as the reception point of the energy to be produced. Usually, the energy is supplied to its customers through existing transmission lines. This form of the power purchase agreement is called a ‘Physical PPA,’ as customers receive physical delivery of energy through an existing power grid.
Once negotiations are settled, the PPA contract can be signed, and the process of supplying energy to your property can begin.
Using their fast-track development model, Constant Energy evaluates necessary safety measures before taking care of any construction and the installation of rooftop solar panels.
What is a Solar Lease and How Does a Solar Lease Work?
A solar lease and a solar power purchase agreement are very similar, and both types of contracts will help you save money. However, they are both different from one another.
If you choose a solar lease, you will be paying a flat fee each month. This means that your monthly payment will not change depending on how much energy you use. This payment fee will be decided in the leasing agreement between you and the solar company. Either way, you will benefit from saving money, as this fee will be less than your monthly electricity bill before going solar. Your solar lease payment price may vary depending on the location or the size of the system.
On the other hand, a solar power purchase agreement (PPA) will essentially work just like your monthly electricity bill. With a solar PPA, you will pay for each kilowatt-hour (kWh) of solar energy you use. So the amount you pay each month for solar energy will vary depending on how much energy your panels produce.
While a solar PPA contract will usually go for 20-25 years to match the life expectancy of the rooftop solar panels installed and paid for by the solar supplier, getting a shorter-term contract with a solar lease is possible. A solar lease contract may last for as little as ten years, but signing for a more extended period can guarantee you lower prices over a longer period, meaning more savings for you.
What is the Better Choice: Solar PPA or Solar Lease?
Whichever contract you choose, the bottom line is you will be saving money on electricity and making the valuable switch to clean energy, lowering your carbon emissions and giving you the benefits of green branding.
As the weather changes throughout the year and sun levels weaken, and where there are fewer hours of sunlight during the day, solar panels will produce different amounts of energy depending on the weather conditions. For example, in Thailand, your solar PPA bills are likely to be higher in the months of March-May as this is when it is the hottest and UV rays are the strongest. Compared to September – November, when sun rays are weaker, and the panels produce less energy, your solar PPA bill is likely to be lower.
Which option fits best will depend on what you are comfortable with financially. Solar leasing gives you the comfort of knowing how much your solar bill will cost each month. You won’t have to worry about unknown finances, and it will make it easier for your company budget. However, with a solar PPA, as there are months where your bill will be less than other months, this could mean that in the long term, you may end up saving more money than with a solar lease.
