What is a Power Purchase Agreement? and How Does it Work?

Understanding the Factors that Affect Your Generation

A solar power purchase agreement (PPA) is a financing arrangement that allows businesses and organisations to purchase solar electricity with no upfront capital cost. You rent your roof and buy discounted solar electricity rather than investing in a solar PV system of your own.

A PPA offers an effective means to reap the benefits of solar PV without taking on the responsibilities of a solar system owner-operator. A PPA also satisfies companies that prefer reinvesting their funds into core business activities.

HOW DOES IT WORK?

When choosing a PPA arrangement, you are committing to buy the agreed amount of energy produced by our solar PV system. Therefore, it is in our best interest for this system to perform optimally all year round for up to 25 years. We achieve this with long-term, proactive operation and maintenance activities, ensuring your system performs in line with expectations and delivers the forecasted energy and, in turn, savings for at least the next 25 years.

In short, this means that on a PPA agreement, we are responsible for all maintenance, operating costs and any replacements needed throughout the contract; you sit back taking advantage of the green energy production.

If, at any point during the contract period, you decide it’s better suited to invest in the technology and leave the PPA agreement, a settlement value can be arranged, and system ownership is transferred.

HOW DOES IT STACK UP against system ownership?

PPA agreements can be ideal for some businesses. However, it is only sometimes a solution companies want to commit to. Both eventualities have their benefits, which you can read in more detail on the factsheet.

To summarise, a PPA allows an organisation to install a solar PV system of any size over 50kWp with ZERO installation costs and ZERO operation and maintenance costs. A purchased system has a precise upfront cost but can demonstrate more significant long-term savings as the energy production becomes free after the return on investment period.

The benefits of power purchase agreements

Understanding the pricing model and the savings predictions

Choosing a PPA agreement delivers a level of certainty for your energy costs currently unavailable from the grid-linked network due to the vast unpredictability present. With prescribed pricing, we can actively compare this to the grid alternative to provide an overview of the potential savings that could be provided by adopting a PPA.

The vast majority of modelling demonstrates that over time, the value of the energy produced by your system will increase significantly, whilst the cost of the PPA agreement only increases at a prescribed rate, as demonstrated below.

price modelling graph

OUR MODEL EXPLAINED and why it’s important

Utilising data provided by Cornwall Insight*, we can predict that energy prices should show a steady return to levels of ‘normality’ by 2030. After this point, we can combine that prediction with historic energy price increases of an average of 8.3% (data provided by gov.uk* tracking the last 20 years of energy pricing).

We will happily admit that our savings modelling is precisely what we say it is, and that is an estimate. We’d be wrong to suggest that all predictions are modelled equally.

When compared with industry competitors, our numbers may be ‘worse’; what is meant by that is that our savings predictions might be lower. We don’t consider this worse; we consider this to be realistic based on the resources we collectively have on hand.

We see that most organisations use a strict percentage increase model and include a ‘presumed’ SEG payment. This provides a broad-stroke estimation but does not consider other factors impacting pricing beyond a primary price trend.

Our prediction model attempts to not only utilise this percentage increase model but acknowledges that we have left a period of high uncertainty and are making predictions that need to factor in various variables, such as market trends, economic indicators, and specific world events.

This granularity is our attempt to present a more precise projection, enabling businesses to make informed decisions and navigate potential challenges with greater foresight.

Last Updated: 07/05/2024

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