Solar as a Service VS Buying the System Outright - Which One is Better?
30th Dec 17
Cameron Quin

If you want to deploy solar power for a residential or commercial property, a very important decision is how you will acquire the photovoltaic system. The conventional approach is to simply purchase it in cash, where you pay a specialised company to assess your property, design a  solar power system that meets your needs, and then proceed with the installation. However, you can also opt for Solar as a Service, where the system provider retains ownership but is responsible for operation and maintenance, while you pay a previously agreed price for the electricity provided by the solar PV system. The fee in Solar as a Service is lower than the retail kilowatt-hour price charged by energy retailers, which results in savings.

Solar as a Service is more commonly known by the name of Solar Power Purchase Agreement (PPA). The main difference is that Solar as a Service describes the service concept itself, while the PPA is the contract signed between the provider and client.

This article will describe both commercial solar power options, pointing out the advantages and disadvantages of each. Like with most decisions dealing with building upgrades, there are tradeoffs involved.

Buying a Commercial Solar Power System

If you decide to pay the full price of a commercial solar system upfront, the main benefit is getting the lowest long-term ownership cost possible. You are also entitled to clean energy subsidies from the Australian government: Small-scale technology certificates (STC) or large-scale generation certificates (LGC), where the type of credit you get depends on installed capacity and annual energy output.

However, when you buy a photovoltaic system, most ownership costs are concentrated at the start of its service life, forcing you to wait a few years before breaking even. Also consider that funds used to purchase the solar power system have an opportunity cost: these can be used for building energy efficiency upgrades, or invested in business operations.

Another challenge that comes with an outright purchase is maintenance. Solar panels are typically rated for 25 years of use, but their surface must be kept clean to ensure optimal performance. For a company, this normally means hiring and training additional maintenance personnel to service the photovoltaic system – keeping a large commercial solar array clean can represent several full-time jobs, especially if installed capacity reaches the megawatt scale.

With an outright purchase, also consider that your commercial solar PV system will eventually need equipment replacements. For example, inverters and lithium batteries normally need a replacement after around 10 years. If any piece of equipment fails prematurely, it may stop electricity generation partially or completely, and you will have to coordinate an unexpected replacement. In these cases, you can save on equipment costs by using products with warranties, but will still be affected by the missed energy savings and the skilled labor cost.

If your company already has technical staff with commercial solar expertise, and you have the capital to spare, an outright purchase can work. Otherwise, you are likely to achieve better results with Solar as a Service.

Solar as a Service

When you sign a PPA to receive Solar as a Service, you delegate operation and maintenance of the commercial solar array to the provider. In addition, they are responsible for financing the installation and bearing the risk of any equipment failures and warranty claims. On the other hand, your only responsibility is paying the agreed electricity fee – there is no need to burden your maintenance staff with solar panel cleaning or equipment replacements.

Another advantage of Solar as a Service is that the capital that would have been spent on a photovoltaic array becomes available for business or for other building upgrades. For example, if you had intended to use those funds anyway, you can upgrade lighting fixtures or air conditioning systems, achieving an even greater reduction of your energy expenses.

Solar as a Service also provides immediate savings because your total energy expenses decrease as soon as you start purchasing cheaper electricity through the PPA. Even if you still depend partially on a local energy retailer after deploying commercial solar, your average kilowatt-hour cost will decrease. In addition, if you are subject to capacity charges for consuming above 160,000 kWh per year, and solar power brings your net consumption below this value, the capacity charge disappears – just keep in mind that it may not be immediate because energy retailers calculate these charges based on 12-month intervals.

While an outright purchase offers more long-term savings, it demands technical expertise and capital availability, while being a riskier approach. Solar as a Service involves giving up on part of the energy savings cover the PPA cost, but your energy expenses decrease right away at zero risk and zero investment from your part.

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Cameron Quin

30th Dec 17
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.