POWER PURCHASE AGREEMENTS

A PPA is a long-term contract between a business and a renewable energy provider where the provider installs, operates, and maintains a solar energy system on the business's property. The business agrees to purchase the electricity generated at a fixed rate, typically lower than the market rate.

No, there are no upfront costs for your business. The renewable energy provider covers the installation, operation, and maintenance costs of the solar energy system.

PPAs usually have a term of 10 to 25 years. The exact duration can vary based on the agreement between your business and the energy provider.

At the end of the PPA term, you typically have several options: extend the agreement, purchase the solar energy system at a fair market value, or have the system removed by the provider.

Yes, PPAs are scalable and can be tailored to suit businesses of various sizes. Whether your energy needs are large or small, a PPA can provide cost savings and environmental benefits.

The energy provider is responsible for maintaining the system and ensuring it operates efficiently. Your contract will typically include performance guarantees, so if the system underperforms, adjustments can be made to ensure you receive the expected energy savings.

Yes, a PPA can be combined with other renewable energy projects, such as on-site battery storage, to maximise energy savings and further reduce your reliance on traditional energy sources.

On-Site PPAs

With an on-site PPA, a solar energy system is installed on your property at no cost to you. You’re billed only for the electricity the system generates, which directly powers your business during daylight hours. This often results in lower energy costs compared to what you’d pay your traditional energy retailer.

Behind-the-meter PPAs are especially effective for on-site generation, as they can significantly reduce your energy bill by offsetting demand costs during peak sunlight hours. When installed on your roof, these systems often transition to full ownership by the end of the contract, with no cost to your business. This type of PPA is versatile, suiting businesses of all sizes and can be integrated with other projects like roof restoration or solar carpark structures.

However, there are risks to consider. If energy market prices drop, the fixed PPA rate might become higher than the grid price, and these contracts typically don’t include a price adjustment mechanism. Additionally, some PPA contracts may include hidden fees, such as balloon payments or high exit fees, which could become problematic later. If you vacate the premises, you’ll either need to buy out the system at a decreasing rate or transfer the contract to the new tenant or property owner.

Retail-Sleeved PPAs

A retail-sleeved PPA is an arrangement between a renewable energy generator, like a wind or solar farm, and an energy retailer. The retailer then supplies your business with renewable energy under a retail agreement. This type of PPA aligns the renewable energy supply with your energy demand at the time of generation.

The advantage of a retail-sleeved PPA is that the energy retailer assumes the market risks associated with wholesale electricity prices, providing you with a stable, fixed energy price. However, this type of agreement typically requires a long-term commitment, often at least 7 years.

Synthetic PPAs (Virtual PPAs)

Synthetic or Virtual PPAs are agreements typically made between large businesses and renewable energy generators. These contracts allow companies to purchase renewable energy at scale, potentially sourcing 100% of their energy needs from renewable sources through the PPA.

A well-structured VPPA can generate significant positive cash flow. As the cost of solar energy has decreased in recent years, it’s possible to secure a VPPA rate that remains lower than the projected wholesale market price at the settlement location.

However, VPPAs come with both risks and rewards. If the market price for electricity exceeds the fixed VPPA price, your business benefits from the difference. Conversely, if the market price falls below the fixed VPPA rate, you’re responsible for covering the shortfall. This structure makes a VPPA a financial hedge against volatile electricity prices. Typically, the buyer gains the project’s renewable energy credits (RECs or LGCs) but doesn’t take physical delivery of the electricity.

A PPA involves a physical solar system installed on your property, while a VPPA is a financial agreement where your business supports off-site renewable energy projects. VPPAs are not tied to your location and can apply to multiple sites across different regions.

The first step is to contact a renewable energy provider like Grid Electrics Group. We will assess your energy needs, evaluate your site, and provide a customised proposal for your PPA.

You don’t need to own your premises to enter into a PPA, but it’s best if you have a long-term lease. If your business is leasing the space, the first step is to get your landlord’s approval for installing a solar system. This approval should be documented with a Letter of Consent (LOC) from the landlord and an amendment to your lease agreement, known as a Letter of Amendment (LOA).

The LOA should outline what will happen if the lease ends or is terminated, including any requirements to restore the property to its original condition. Once you have a basic agreement on the LOC and LOA, you can move forward with the solar project. These agreements can be fully finalized after you’ve decided to proceed with the solar installation.