Energy, EPC, Power Purchase Agreement, PPA, Solar, Technical Asset Management

What is a solar PPA and how can it help your business?

What is a PPA

A Power Purchase Agreement (PPA) is a simple yet powerful way of bringing investment into the renewable energy space. A PPA is an agreement where a seller sells electricity to a buyer at a certain price for a certain period. They are very common in the solar sector, particularly for industrial solar rooftop installations. Logically a PPA for solar is referred to as a solar PPA.

Who signs a PPA

There are two main parties involved in a PPA:

  1. The Client – any property owner with a large roof space, for example:
    • Factory owner (e.g. car manufacturer, beer producer)
    • Pharmaceutical
    • Hospital
    • University
    • Airport
  2. The Investor – the party that pays for the solar installation and then over time sells the electricity generated to the Client at an agreed rate

Importantly there is also the EPC (Engineering, Procurement, Construction) company – the party that is responsible for the performance of the solar installation and provides Operations & Maintenance (O&M) services for several years.

What are the benefits of a PPA

The beauty of PPAs is how they are a win-win solution for both parties:

  1. The Client:
    • Pays no upfront cost for the solar installation
    • Requires no upfront knowledge of solar as the investor (alongside the EPC company) takes complete care of designing, developing, building and operating the solar installation
    • Accesses electricity at a cheaper rate than on the wholesale market allowing them to save on running costs
    • Insulates themselves from rising electricity costs
    • Adds values to their property by adding a passive income stream post PPA term end
    • Can obtain tax benefits
    • Contributes to their renewable energy targets by meeting a large amount of their electricity demand through the solar installation
  2. The Investor upfronts the solar installation costs but receives a reasonable return on investment throughout the life of the PPA allowing for attractive IRRs. A PPA varies in duration but typically range from between 15 to 25 years.

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