A guide to Power Purchase Agreements for UK businesses.
Intro: why funding shouldn’t stop your net zero plans
A familiar problem for most in sustainability is funding. Sustainability is still seen by a lot of people as something nice to have, rather than a necessity. Not only is renewable energy a great way to show your commitment to the environment, but it usually comes with cost saving benefits.
To get over the funding hurdle, a common source of funding is power purchase agreements (PPAs). PPAs provide an accessible way to get solar panels with no upfront costs.
We have helped many companies and organisations deliver funded installations with long term cost savings through our PPA partners.
But what is a PPA, and is it right for you?
What is a PPA?
Our funding partners, or other PPA providers, pay for the installation of your solar panels on your roof or land. The energy generated goes to these PPA providers, and they sell it back to you at a fixed and agreed price that is lower than grid rates.
This way, there’s no upfront cost required from you for the installation, but you also won’t own it until your PPA contract ends. This is usually anything from 5 to 15 years long, leaving you with 15 to 25 years of free solar energy.
To be clear, a PPA is not a roof lease as you are not renting the equipment, but rather paying reduced rates on the energy you consume.
How does a solar PPA work in practice?
Here’s a typical solar PPA process from start to finish:
- Survey & design: Before funding is agreed, your solar panel installer needs to carry out a survey on your property. This ensures that you have a suitable roof or ground space for the installation, and determines how many panels can be installed. This in turn determines how much energy your system will produce. At Carbon3 we have a design team who will put together the above. Some installers will outsource this.
- Funding partner signs PPA: Your chosen funding partner will pay your installer for the solar installation. You’ll agree terms and conditions including contract length and the price you’ll pay for the energy you consume.
- Installation: The installer will begin work on your site. They will usually discuss timings and project length with you and make efforts to keep your business or organisation running while the project is carried out.
- Energy supply begins: Once the installation is completed, you’ll then begin using your reduced rate energy, supplemented by energy from the grid if you need more than is generated.
- Ongoing maintenance: Your PPA partner will usually cover your system’s maintenance up until you inherit the system at the end of the contract. This usually includes any fault fixing and regular system checks. It may include panel cleaning – but check your contract!
- End of contract: After the set amount of years, you inherit the system. Now you’ll have access to completely free solar energy generated.
There are no hidden costs, and you will be benefitting from reduced rate energy from day one.
Why choose a PPA?
What are the benefits of a PPA? And why could it be the best solution for your business or organisation?
- The first and most crucial benefit for most people is the zero capex (capital expenditure). You don’t need any upfront funding to benefit from solar savings.
- You also won’t need to rely on volatile pricing from the grid as the bulk or potentially all of the energy you use is generated by the solar panels. This means you can budget using stable energy prices.
- Your business or organisation can demonstrate a clear commitment to the environment and sustainability. Your emissions will be reduced and installers such as Carbon3 can provide regular reports for your ESG reporting.
- You don’t need to worry about maintenance or other problems with the panels. This is all taken care of by your PPA provider until you inherit them. You won’t have to worry about another asset or keeping track of when annual check ups need to be organised.
- You’ll also get to inherit the system after a set term, moving from reduced price solar energy to completely free solar energy!
Example: community sports training ground, Portsmouth
A recent client of ours, a charity-run sports training ground in Portsmouth, used a PPA to fund their installation. Here’s how it went:
To continue serving their community, our client needed to cut costs. They also wanted to increase their green credentials.
Using our PPA partner, they were able to have a system installed across three of their roofs, totalling 152.72kW. This produces a total annual output of over 130,000kWs.
They benefitted from cost savings from day one, and lasting another 30 years. The CEO had this to say: “Sustainability is becoming more and more important to the charity in everything that we do. We are starting here as we mean to go on, to really make a difference.”
Not only were they able to achieve the necessary cost savings for their project, they also were able to contribute to their sustainability initiatives. They have even gone on to use the classroom on their premises to teach people about the benefits of sustainability and renewable energy.
Is a PPA right for your organisation?
A PPA is not always the right choice for your organisation or business. So when is it ideal?
- If your business or organisation has high daytime energy usage. This is when your panels will be generating energy. You’ll get the most from your system if you use the energy generated rather than relying on the grid.
- If you have a tight budget for sustainability, a PPA is a great option for you. As it doesn’t require any upfront funding, you can save that budget for other sustainable initiatives.
- If you will need these solar savings long term. A solar system usually lasts between 25 and 30 years, guaranteeing lower energy bills for the entire length of its life.
- If you have an appropriate roof or ground space. If you have a roof type that is unsuitable for solar panels, a PPA would not be right for you as there wouldn’t be anywhere to install your panels.
As a PPA is not government funded, there isn’t a strict eligibility criteria for PPAs. You need to decide if it is right for your organisation, and then find the best PPA partner for your needs.
Next Steps: How Carbon3 Can Help
We are a trusted solar installer, and while we cannot give financial advice, we can help you understand your options with the help of our financial partners.
We’ve delivered many PPA funded installations, and have found this can be a great option for a lot of businesses and organisations.
If you’re interested in PPAs or any renewable energy project, give us a call or email, and we can help you save on your bills.
FAQs:
What are the disadvantages of a power purchase agreement?
While a power purchase agreement is a great option for many businesses and organisations, there can be downsides. You need to be able to commit to a long-term agreement – many PPAs last from 5 to 15 years.
Also, if grid rates drop below the agreed cost you are paying for your energy, you won’t benefit from this.
What is the difference between a PPA and a lease?
A lease would be to rent the solar equipment – you’d be paying a fixed monthly price to use your solar system. A PPA only charges you for the energy you consume, and at a reduced cost.
What is the difference between PPA and IPP?
An IPP is an Independent Power Producer. If you develop a solar panel project backed by a PPA you would be the IPP in this context.
Is a PPA a loan?
A PPA is not a loan. You will not need to pay back the cost of the installation.
Is a PPA a good idea?
This depends on your business and its circumstances. We’ve outlined above the benefits and in which situations it is ideal, but it is up to you to evaluate your options.
Intro: why funding shouldn’t stop your net zero plans
A familiar problem for most in sustainability is funding. Sustainability is still seen by a lot of people as something nice to have, rather than a necessity. Not only is renewable energy a great way to show your commitment to the environment, but it usually comes with cost saving benefits.
To get over the funding hurdle, a common source of funding is power purchase agreements (PPAs). PPAs provide an accessible way to get solar panels with no upfront costs.
We have helped many companies and organisations deliver funded installations with long term cost savings through our PPA partners.
But what is a PPA, and is it right for you?
What is a PPA?
Our funding partners, or other PPA providers, pay for the installation of your solar panels on your roof or land. The energy generated goes to these PPA providers, and they sell it back to you at a fixed and agreed price that is lower than grid rates.
This way, there’s no upfront cost required from you for the installation, but you also won’t own it until your PPA contract ends. This is usually anything from 5 to 15 years long, leaving you with 15 to 25 years of free solar energy.
To be clear, a PPA is not a roof lease as you are not renting the equipment, but rather paying reduced rates on the energy you consume.
How does a solar PPA work in practice?
Here’s a typical solar PPA process from start to finish:
- Survey & design: Before funding is agreed, your solar panel installer needs to carry out a survey on your property. This ensures that you have a suitable roof or ground space for the installation, and determines how many panels can be installed. This in turn determines how much energy your system will produce. At Carbon3 we have a design team who will put together the above. Some installers will outsource this.
- Funding partner signs PPA: Your chosen funding partner will pay your installer for the solar installation. You’ll agree terms and conditions including contract length and the price you’ll pay for the energy you consume.
- Installation: The installer will begin work on your site. They will usually discuss timings and project length with you and make efforts to keep your business or organisation running while the project is carried out.
- Energy supply begins: Once the installation is completed, you’ll then begin using your reduced rate energy, supplemented by energy from the grid if you need more than is generated.
- Ongoing maintenance: Your PPA partner will usually cover your system’s maintenance up until you inherit the system at the end of the contract. This usually includes any fault fixing and regular system checks. It may include panel cleaning – but check your contract!
- End of contract: After the set amount of years, you inherit the system. Now you’ll have access to completely free solar energy generated.
There are no hidden costs, and you will be benefitting from reduced rate energy from day one.
Why choose a PPA?
What are the benefits of a PPA? And why could it be the best solution for your business or organisation?
- The first and most crucial benefit for most people is the zero capex (capital expenditure). You don’t need any upfront funding to benefit from solar savings.
- You also won’t need to rely on volatile pricing from the grid as the bulk or potentially all of the energy you use is generated by the solar panels. This means you can budget using stable energy prices.
- Your business or organisation can demonstrate a clear commitment to the environment and sustainability. Your emissions will be reduced and installers such as Carbon3 can provide regular reports for your ESG reporting.
- You don’t need to worry about maintenance or other problems with the panels. This is all taken care of by your PPA provider until you inherit them. You won’t have to worry about another asset or keeping track of when annual check ups need to be organised.
- You’ll also get to inherit the system after a set term, moving from reduced price solar energy to completely free solar energy!
Example: community sports training ground, Portsmouth
A recent client of ours, a charity-run sports training ground in Portsmouth, used a PPA to fund their installation. Here’s how it went:
To continue serving their community, our client needed to cut costs. They also wanted to increase their green credentials.
Using our PPA partner, they were able to have a system installed across three of their roofs, totalling 152.72kW. This produces a total annual output of over 130,000kWs.
They benefitted from cost savings from day one, and lasting another 30 years. The CEO had this to say: “Sustainability is becoming more and more important to the charity in everything that we do. We are starting here as we mean to go on, to really make a difference.”
Not only were they able to achieve the necessary cost savings for their project, they also were able to contribute to their sustainability initiatives. They have even gone on to use the classroom on their premises to teach people about the benefits of sustainability and renewable energy.
Is a PPA right for your organisation?
A PPA is not always the right choice for your organisation or business. So when is it ideal?
- If your business or organisation has high daytime energy usage. This is when your panels will be generating energy. You’ll get the most from your system if you use the energy generated rather than relying on the grid.
- If you have a tight budget for sustainability, a PPA is a great option for you. As it doesn’t require any upfront funding, you can save that budget for other sustainable initiatives.
- If you will need these solar savings long term. A solar system usually lasts between 25 and 30 years, guaranteeing lower energy bills for the entire length of its life.
- If you have an appropriate roof or ground space. If you have a roof type that is unsuitable for solar panels, a PPA would not be right for you as there wouldn’t be anywhere to install your panels.
As a PPA is not government funded, there isn’t a strict eligibility criteria for PPAs. You need to decide if it is right for your organisation, and then find the best PPA partner for your needs.
Next Steps: How Carbon3 Can Help
We are a trusted solar installer, and while we cannot give financial advice, we can help you understand your options with the help of our financial partners.
We’ve delivered many PPA funded installations, and have found this can be a great option for a lot of businesses and organisations.
If you’re interested in PPAs or any renewable energy project, give us a call or email, and we can help you save on your bills.
FAQs:
What are the disadvantages of a power purchase agreement?
While a power purchase agreement is a great option for many businesses and organisations, there can be downsides. You need to be able to commit to a long-term agreement – many PPAs last from 5 to 15 years.
Also, if grid rates drop below the agreed cost you are paying for your energy, you won’t benefit from this.
What is the difference between a PPA and a lease?
A lease would be to rent the solar equipment – you’d be paying a fixed monthly price to use your solar system. A PPA only charges you for the energy you consume, and at a reduced cost.
What is the difference between PPA and IPP?
An IPP is an Independent Power Producer. If you develop a solar panel project backed by a PPA you would be the IPP in this context.
Is a PPA a loan?
A PPA is not a loan. You will not need to pay back the cost of the installation.
Is a PPA a good idea?
This depends on your business and its circumstances. We’ve outlined above the benefits and in which situations it is ideal, but it is up to you to evaluate your options.