What is PPA or Power Purchase Agreement?
A PPA is a solar financing option available to Australians, but let’s take a look at whether it is the best financing solution available.
The Power Purchase Agreement or PPA is a financing option available in Australia for solar system installations. Financing costs can be the only option for some to cover the upfront cost of solar installations. But is a PPA really the best choice for everyone?
Solar systems have proven to be the best way to reduce your electricity bill, especially in states like South Australia, Queensland, New South Wales and Victoria where electricity rates are high.
Moreover, solar equipment prices have reduced at an accelerated rate over the last decade due to the increasing number of installations.
Today, we can say that the cost per watt of a solar system is close to US $2.8 (according to NREL 2017) which is much lower than the US $4.64/Watt back in 2010.
What is PPA Exactly?
The PPA is a financial agreement under which the solar installer takes care of the site assessment, design, permission for connection to the grid and installation of a PV system at little or no upfront costs.
You will simply receive a monthly electricity bill from the installer for the electricity consumed at a fixed tariff over the next 10-25 years of the agreement.
What are the benefits of a PPA for a solar client?
No upfront cost
The most important limitation to installing a solar PV system is eradicated, since there is no need for an initial investment for the installation and you can enjoy the benefits of solar energy.
The agreement establishes as part of the contract a fixed amount to be paid every month for the kWh consumed; an amount that is always less than the electricity bill from your retailer.
The best thing is that you can save money every month and you can easily know and project all the savings across the year and over the next years of the contract based on the patterns of consumption.
Moreover, the Australian Electricity Market is always fluctuating, and once every while you can experience peak prices in moments of high electricity demand. Since you won’t be paying attention to the electricity spot market at every moment of the day, you can easily end up consuming electricity unnecessarily at the worst possible moments!
With a fixed solar tariff you will bring stability to your household or commercial installation and avoid unpleasant electricity bill surprises.
With the PPA you will simplify your life and actually it will be simply like switching from one retailer to another, except that the solar retailer will be cheaper and will produce clean energy!
Forget about maintenance
The solar installer will need to do the maintenance, take care of the operation procedures and costs associated with them.
You will simply leave the maintenance to the experts!
No extra insurance
The solar installer will also provide the necessary insurance to cover and protect the solar system. No extra expenses needed.
Increase your property value
It is known that when installing a solar PV system on the roof, the value of your household or commercial property will be greatly increased.
Moreover, the PPA allows you to transfer these benefits to the new owner of the property should you decide to sell.
What are the downsides of PPA?
All of this sounds great! But what is the other side of the coin? Let’s take a look.
Ownership and PPA
Choosing a PPA means that you will not own the PV system during the term agreed and since you won’t own it, you won’t be able to sell it.
If you want to sell your house or property, you will need to do it knowing that the system belongs to the solar installer. Therefore, you will need to convince the new owner to work on the same agreement established with you.
This could be a problem if you sell your property at any time soon.
You will also lose the opportunity to take advantage of solar rebates since they will pass to the solar installer. Besides that, you won’t be able to claim for tax benefits either.
The benefits from solar are not as attractive as they could be if you own the system, since the cost for professional services is generally charged in the fixed tariff of the contract, meaning that you will pay more than the actual value of the kWh produced by the system, which on the long term, will mean less savings.
The Power Purchase Agreement is an attractive option for those who do not have the resources to pay the initial investment required for a solar installation.
However, since you are not entitled to receive any tariff reduction or rebates and since the whole picture of the scenario represents less profit for the homeowner, it is generally the less preferred financing option among Australian people.