Commercial Solar Power Purchase Agreements

The Problem

Solar PV can be a lucrative investment for commercial electricity users. Many businesses have the perfect combination of high electricity use and lots of roof space. Economies of scale also help with the cost-effectiveness of large commercial systems. Put together, these factors can translate into a very high rate of return from commercial solar PV systems. However, not every business has the capital required to purchase a new solar PV system outright.

Large solar PV system on the roof of a commercial premises
Businesses and farms can exploit their roof space by installing solar PV. Image credit: PublicDomainPictures on Pixabay

The Power Purchase Agreement (PPA) Solution

A PPA works like this. Let’s say you own a factory and want to reduce your electricity overheads. You suspect that solar PV could help but you haven’t got the upfront capital to cover the cost of a solar PV system. Right now you are paying €.105 per kwh for electricity from your electricity supplier.

A solar PV company comes along and offers to install a solar PV system on your roof with no up-front cost. Here’s how it works: The solar PV system goes on your roof, but it remains the property of the solar PV company. The solar PV company sells the power to you at a discounted rate, perhaps €.080 per kwh. This means that you start saving money from day one, with no overheads. It’s also a good investment for the solar PV company because it provides them with a steady stream of income over a long period of time. For these reasons, the global solar PPA market reached 9.6 billion Watts in 2019, and it’s still growing.

PPA vs Outright Ownership

While a solar PPA can work well for many companies, the benefits of owning a solar PV system outright can be even greater. If you’re thinking of going for a PPA, it’s well worth also considering the option of outright ownership. You can use a net present value model to assess the cost/benefit balance of investing in solar PV directly.

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