POWER PURCHASE AGREEMENT
Image: Bissell’s Paint & Panel
WHAT IS IT?
PPA terms vary between providers and there is no single standard contract, so it is important to understand the specific terms you are offered. A PPA may include a minimum duration and/or a requirement for you to purchase a minimum amount of electricity per month at a price set out in your contract. Terms are typically 7 to 20 years. End of term options may include renewing the PPA at the same or lower cost per kWh; paying a ‘residual’ payment to take ownership of the system; or having the system removed from your property.**
Who Would a PPA Suit?
PPAs suit businesses that prefer to avoid capital expenditure, want predictable energy costs, or don’t want the operational responsibility of owning a system. They are particularly well-suited to larger commercial properties that use a significant amount of electricity onsite. PPAs have been the fastest-growing commercial solar finance channel in Australia in recent years and are now a mainstream option, not just a fallback.**
What Are the Benefits?
You can get a solar system installed without any, or a very small, up-front cost and immediately start getting cheaper electricity.
Electricity remains an operational expense for your business.
Your electricity price per kWh is set for the duration of the contract, giving you certainty.
You can often get flexible terms with extension and early buyout options.
You have no responsibility for management or maintenance of the system.
Some PPA providers now include battery storage in the agreement, which can further reduce your grid reliance.
Traps for the Unwary
It is vital that you know, in detail, your energy consumption pattern throughout the day and the week - in other words, how much electricity you use for each hour of the day and each day of the week on average.
If the solar power you generate is not used on-site or stored in batteries and used later, then it must be fed into the grid in exchange for a feed-in tariff. The feed-in tariff will be less than you are paying the third party, meaning you will be out of pocket for the difference.
For a PPA to be cost-effective, you must save enough on electricity when using it to offset the cost of exporting it when you don’t need it on-site.
It is very important to understand, and where appropriate, get legal and accounting advice on the features, costs, and benefits of the particular PPA you are considering.**
Check whether you will need to pay any up-front costs, such as wiring upgrades, roof repairs, or the cost of getting a new meter.
You are locked into a fixed contract for the term, and exiting early will likely incur fees.
Check what rights you have if there is damage caused to the roof or building during installation or removal.
Check whether the third party can cancel the contract if they decide the system isn’t making them enough money.
Check whether the PPA rate includes an annual escalation clause. Some contracts increase the per-kWh rate each year (e.g. by CPI), which could erode your savings over time.
** Disclaimer: This is not financial advice. You should consider seeking independent legal, financial, taxation or other advice to check how this information relates to your unique circumstances. ZEN is not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information provided directly or indirectly, by use of this factsheet.