The Power Purchase Agreement (PPA) business model has been highly successful in the USA, driving growth in the solar power industry. Basically, when you sign a PPA, the provider is given access to your property to install and operate a solar PV system. Then, you agree to purchase the electricity delivered by the solar array at a price below utility rates.
This article will provide an overview of the pros and cons of going solar with a PPA, compared with the alternative of owning the PV system yourself.
The main benefit of a solar PPA is that you avoid having to pay the upfront cost of a photovoltaic system, and experience an immediate reduction in your electricity expenses from the first month of operation. On the other hand, when you purchase a solar PV system, the payback period typically lasts for a few years.
In addition to reducing your electricity expenses, a solar PPA provides a predictable energy price for the duration of the contract – you are spared from the unpredictable price increases of utility companies. Australian electricity bills have doubled in less than a decade!
Another benefit of a solar PPA is that the provider takes responsibility over maintenance and equipment replacements. You are also free from any liabilities if system components fail prematurely. If you own the installation you will have to take care of replacements and maintenance, and even if you are covered by warranties you will waste valuable time.
If you are a business client, a solar PPA allows you to dedicate resources to your core business, leaving PV system maintenance to experts. Businesses who own solar arrays must train and manage a maintenance team to keep the system operating under optimal conditions. Also, consider that equipment purchases and installation drain capital that can be used for business.
A solar PPA has limitations, but there are ways to compensate them. The main drawback is that the PPA electricity price includes the cost of professional services offered by the system provider, and you save slightly more in the long run by owning the PV system. However, this is a small price to pay when you consider that the PPA provider bring technical expertise, while assuming the financial risk and giving you instant savings.
Another disadvantage of a PPA is that you can’t sell the solar PV system if you sell your property, since it is legally owned by the PPA provider. This can be a drawback if you plan to move soon. However, if you point this out to the solar PV system provider, they can include a clause that makes the contract transferrable to the new occupants. You still have to convince the new homeowner, but the prospect of cheap electricity with no extra cost is attractive!
A solar PPA is a zero-cost and low-risk way to deploy a photovoltaic system in your property, where you save slightly less than if you own the system, but in exchange you get professional maintenance and guaranteed generation. A PPA is a great alternative if you are unwilling to assume the upfront cost of a solar PV system. Even if you are willing to pay for a solar PV system, a PPA frees up that capital for energy efficiency improvements such as a high-performance heat pump.