How a Solar PPA Protects You From Electricity Price Increases
29th May 18
Cameron Quin

Australia has some of the highest electricity tariffs in the world, and in some places you can expect to pay above 40 cents per kilowatt-hour. Both homes and businesses are affected by the relentless price increases, and some electricity consumers have seen their power bills double in less than a decade. There are two  main ways to protect yourself from higher tariffs, and they complement each other: consuming less kilowatt-hours from the network, and producing your own electricity. Commercial solar power is a viable option for self-generation, considering the abundant sunshine in Australia.

Contrary to popular belief, electricity generation in Australia is relatively cheap from the global standpoint. For many consumers, more than half of the power bill payment is used to cover the network ownership cost and retail margins. Energy efficiency and commercial solar power are both viable approaches to counter this, but the upfront cost is very high if they are deployed simultaneously. A promising approach is to invest in energy efficiency, while the kilowatt-hour price is reduced through a solar Power Purchase Agreement (PPA).

As we have discussed in previous articles, in a solar PPA you are not purchasing the photovoltaic array per se. Instead, you agree to purchase the energy output of a commercial solar system over a specified period, while the system provider is responsible for financing and maintenance.

Solar PPA: Cheap Electricity, Long-Term Guarantee

Network costs make electricity expensive in Australia, and there is no network in a solar PPA. Therefore, you can expect much cheaper electricity: the kWh price in a solar PPA can be up to 50% lower than your normal tariff. However, the outlook is even better when you compare the solar PPA price with future electricity prices.

  • Australian electricity tariffs are prone to unpredictable increases.
  • The solar PPA pricing terms are laid out upfront. Normally, you are only subject to a slight yearly increase due to inflation.

Assume you sign a solar PPA for 20 cents/kWh at a time when your power retailer is charging 30 cents/kWh. If the price increases to 40 cents/kWh, your savings have essentially increased from 33% to 50%.

Accounting and finance professionals tend to like solar PPAs because they offer something that utility companies do not: predictable long-term prices for electricity, at zero upfront cost. Energy expenses can be budgeted much more precisely, since only the electricity you continue to draw from the grid is subject to price volatility.

As a complement to cheaper electricity, consider that solar photovoltaic systems normally come with great warranties: solar panels come with a 10-year warranty against manufacturing defects, and a 25-year power generation warranty. Also, don’t forget that all this equipment is purchased by your solar PPA provider, and any eventual warranty claims are handled by them as well. Basically, you just sign a contract and start using cheaper electricity right away.

If you are a business, there is also a marketing benefit form using solar power: Australians have a very favorable perception of photovoltaic technology, due to its low electricity cost and clean operation. Companies who use this energy sources are viewed as corporate citizens.

 

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Cameron Quin

29th May 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.