Technical and Financial Benefits of a Commercial Solar PPA
10th Apr 18
Cameron Quin

Solar photovoltaic systems are among the most promising upgrades available for commercial buildings, offering property owners the ability to generate their own electricity. This is especially valuable in Australia, where electricity rates for both homes and businesses are among the highest in the world, having doubled for some customers in only a decade.

However, no building upgrade is free, and a commercial solar array has many sophisticated components such as photovoltaic modules, inverters and electrical protection devices. All this equipment has an upfront cost that must be assumed, as well as a maintenance cost to keep it under optimal operating conditions. In addition, even if the funds for the project are available, you need qualified technical personnel to service the installation. In a few words, owning and operating a commercial solar power system involves both financing and technical know-how.

The concept of solar as a service is promising for property owners, since they can get the benefits of solar power without worrying about project financing and the technical aspects. Under this service concept, the system provider is responsible for financing and maintenance, remaining the owner of the installation while the client purchases the energy output for a previously agreed price. Both parties sign a Power Purchase Agreement (PPA), which outlines their responsibilities: the PV system provider guarantees the clean energy supply, while the client guarantees payment for it.

Financial Benefits of a Solar PPA

For a company, the main financial benefit of getting clean energy through a commercial solar PPA is not having to commit business capital upfront. Keep in mind that capital has an opportunity cost for a company: if they commit it to one project, they give up on any potential benefits from investing those funds in normal operations or in another project.

Assume a company is considering both an LED lighting upgrade and a commercial solar power system, but the available funds only allow one project. By signing a commercial solar PPA, however, it is possible to develop both projects: the company carries out the lighting upgrade with their funds, while solar power is obtained through a PPA.

Commercial solar PPAs can be especially attractive for smaller businesses, since their access to capital is normally limited compared with larger corporations. The solar as a service concept can be used to take photovoltaic technology to clients who would be unable to afford it otherwise. Even after subtracting the solar power subsidies available in Australia, deploying a commercial photovoltaic system normally costs more than $1,000 per kilowatt of installed capacity. For example, a 100-kW installation would represent an investment of over $100,000 for the company who owns it.

A second financial benefit becomes available the first month after the solar PV system starts operating. Since the kWh price in the PPA is much lower than the retail kWh price charged by local energy companies, there is an immediate reduction in operating expenses. Those savings can be reinvested in business operations for added profit; for example, they can be used to increase the staff of a key business department.

Also keep in mind that a solar PPA offers a predictable electricity price for its entire duration, helping you avoid the sudden and unpredictable price increases applied by power retailers. Finance managers like predictability when making projections, so they are likely to appreciate the benefits of a solar PPA.

If you are a property developer who owns commercial space for rent, solar power can make you more competitive. You can sign a solar PPA to reduce your kilowatt-hour cost, and then deploy an embedded network to submeter and bill your tenants internally. Even if you still get some electricity from a local energy retailer, your average kWh cost will be lower compared with another developer using the power network for all their electricity needs. As a result, you can offer lower electricity bills to any prospective tenant asking about your commercial spaces.

Technical Advantages of a Commercial Solar PPA

Commercial solar power arrays are easier to service than other generation systems, but the staff in charge must still have the right technical qualifications for the job. If your company is not in the energy business, deploying your own solar photovoltaic system involves training your maintenance staff accordingly. You may also have to increase your headcount, since photovoltaic system maintenance is added to existing tasks.

Although training or expanding your technical staff is feasible, you assume the risk of losing key talent if they choose a professional opportunity with another company. On the other hand, maintenance is provided by the system supplier with a solar PPA, and you dont have to worry about employee rotation and management of additional maintenance tasks.

A commercial solar PPA also offers advantages during system installation, since you dont have to worry about design and installation. These stages of the project can be challenging to manage when a company has no previous experience with solar power, even if you are working with qualified design professionals and installation contractors.

Solar photovoltaic systems are a very reliable technology, but there is always a risk of component failure. Even if you are covered by warranties, these faults can interrupt the power supply and drive up your power bills temporarily, and you must also manage all the paperwork and logistics associated with equipment replacements. Also consider that some system components last less than solar panels and must be eventually replaced; for example, inverters and batteries have a typical service life of 10 years, which means you must schedule at least two replacements during the 25-year service life of photovoltaic panels. With a solar PPA, the system provider is responsible for any equipment replacement, regardless of whether they failed prematurely or reached the end of their service life.

Conclusion

In a few words, deploying commercial solar power through a PPA eliminates the upfront cost of the installation and provides savings from the first month of operation, while sparing your maintenance staff from additional responsibilities. You must only agree to purchase the energy produced by the solar power system for a specified period.

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Cameron Quin

10th Apr 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.