Purchasing a Commercial Solar System or Signing a PPA? A Guide to Help You Decide
31st Jul 18
Cameron Quin

If you are considering solar power for a home or business and ask for proposals, you will notice there are two main options. Some providers simply sell you the solar power system, fully installed and ready to produce electricity. In other cases you are offered a Power Purchase Agreement (PPA), where the solar system remains under the provider’s ownership while you use the energy output. There are also providers that offer both options, adapting to the needs of a larger number of clients.

In simple terms, you are paying for the solar system itself in a direct purchase, and you are paying for its electricity output in a PPA. Your electricity expenses are reduced drastically in both cases, but the exact method to accomplish it changes. This article will compare both options and will help you decide which one works better in your case.

Purchasing a Solar Photovoltaic System

Purchasing a solar power system is not very different from purchasing other types of equipment for your home, such as air conditioners or water heaters. In this case the solar array belongs to you once it is installed and paid – you are free to use its power output, but also responsible for providing maintenance.

Commercial solar systems have simpler maintenance requirements than other types of power generation equipment, but this does not mean you can take maintenance lightly.

  • Keeping your solar array clean and free of shadows is very important. When your PV modules are covered by dirt, fallen leaves or other objects, less sunshine is reaching the solar cells to be converted into electricity. If your commercial solar system generates less electricity you have to purchase more from the power network, and you are missing on potential savings.
  • Solar panels typically last for over 25 years, but other system components must be replaced much earlier. For example, inverters and battery packs are typically rated for 10 years, so you have to schedule and budget their replacements in advance.
  • Like with any equipment purchase, there are components that can fail prematurely. The cost of replacements is not an issue if your installation comes with solid warranties, but you are responsible for managing the replacement process.

To purchase a solar array, you can save the capital or you can take a loan from a bank. You save slightly less in you take a loan, due to interest payment, but you can deploy a solar system without assuming its full cost at once.

  • You can expect to pay slightly over $1,000 per kilowatt for most small-scale residential installations, while larger commercial systems can go below $1,000 per kW, thanks to economies of scale and subsidies.
  • The savings from solar power are so high in Australia, that most installations can pay loans by themselves if you decide to finance them with debt. Actually, savings are likely to exceed loan payments right from the first month of operation – electricity prices in Australia area high, while interest rates are low.

When you sign a solar PPA you pay for an ongoing service, which means that savings are slightly less in the long run. However, you must also assume more responsibilities and risks if you own the solar system.

Signing a Solar PPA

With a PPA, you can avoid two of the main hurdles when deploying solar power: the upfront cost of the system and the need for ongoing maintenance. This is an excellent option for businesses unwilling to hire and train a technical staff to service a large solar array, or for homeowners who want the savings of solar power without dealing with the technical aspects.

Compared with purchasing electricity from the grid, a PPA gives you savings through a lower kilowatt-hour price. Consider that electricity flows directly from the generation system to your building, without traveling through an expensive power network, and electricity retailers are also removed from the energy purchase. The kWh price in a solar PPA can be up to 50% lower than your normal electricity tariff.

In a solar PPA, the system provider is responsible for financing, maintenance, component replacements and warranty claims. Your only responsibility is paying for the electricity delivered by the solar system, according to the terms established in the PPA contract. This option is also known as “solar as a service”, since you are paying for the electricity delivered – it is similar to how you pay for electricity, gas and water from utility companies.

Solar PPA providers normally give you the option of purchasing the array, if you prefer to own it at any point during the contract term. You no longer have to pay for electricity if you choose this option, but you become responsible for maintenance.

Final Comparison

When deciding between purchasing a solar array or signing a PPA, no option can be considered better than the other for all circumstances. The advantages and disadvantages of each are summarised below:

  • If you purchase a solar array, you can get higher savings in the long run because you are not paying for the provider’s operation and maintenance services. However, not paying for these services means you become responsible for them, and you must also have the funds available to cover the upfront cost of the solar system.
  • If you sign a solar PPA, all responsibilities and risks are transferred to the system provider, while you only have to pay for the electricity delivered. Savings are slightly less in the long run, since you are paying for the kilowatt-hours produces, plus the technical services needed to keep the system under optimal operating conditions.

An industrial client with a well-trained maintenance staff and plenty of capital may prefer the purchase – neither the funds nor the maintenance requirements are an issue in this case. On the other hand, a large retail company may opt for the PPA, preferring to focus on their core business while the solar system provider operates and services the system. In a few words, the best option depends on the needs and preferences of each client.

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Cameron Quin

31st Jul 18
Cameron Quin

Cameron Quin has been heavily involved in business development from an early age. After founding and selling two online companies, Cameron found a strong passion for renewables and the opportunities it brings for the commercial and industrial sector. Sharing the possibilities of solar and the knowledge from the Solar Bay team is his favourite pastime.