Purchasing and installing solar panels, especially for large buildings, can incur significant upfront costs for building owners. Financing arrangements like a solar PPA or solar leasing are here to help! Building owners can now make the switch to solar with almost zero initial investment.
What is a Solar PPA and Solar Leasing?
A solar Power Purchase Agreement (PPA) is a type of solar financing arrangement that allows a property owner to not have to pay for the upfront costs of a solar PV system. By leasing out their rooftop space for a solar energy developer to install and operate a solar system, property owners in return are entitled to purchase the solar system’s electricity output at a discount — often 20-50% compared to market electricity tariff rates. In Singapore, they are also sometimes referred to as “solar leasing” or “solar as a service”.
However, solar PPAs are usually long-term contracts that last at least 20 years, hence requiring a minimum property lease term of the same duration and are often only available for commercial or industrial building owners with a rooftop solar potential of at least 500 kWp (roughly an undisrupted rooftop area of 2,500 sqm).
Solar AI Technologies is partnering with ENGIE Group, one of the world’s largest renewable energy companies, to bring zero upfront cost solar offers to all SMEs and business owners with contract terms as short as 5 years. We’re committed to democratising solar for all property owners, for commercial and residential property owners.
If you are interested to learn more about this zero upfront cost solar offer, click here!
How does a Solar PPA work?
The terms of a solar Power Purchase Agreement can vary based on several factors. These include the solar developer, the building’s rooftop solar potential, local regulations and more. That said, here are some common facts about solar PPAs:
- Enjoy discounted solar electricity at zero upfront costs – property owners enjoy a fixed rate structure or discounted rates usually at 20% to 50% less than prevailing market electricity prices
- 5 to 25-year contracts
- Solar PV assets owned by solar developers – the solar energy company covers upfront costs to own the rooftop solar asset and pays for any maintenance costs for the solar system
What are the Benefits of a Solar PPA?
- Zero upfront costs to benefit from solar energy
- Immediate cost savings with lower solar electricity bills once solar is turned on
- More predictable energy pricing with the ability to lock in fixed electricity prices to protect against unpredictable wholesale energy prices
- Zero risks from owning and operating an energy asset since customers only pay for solar energy consumed
- Zero operational costs since solar developers cover all maintenance costs and are incentivised to upkeep the solar panels to generate the most electricity
- Increase in property value
- Reduce carbon footprint with the switch to clean energy
How Much Can You Save with Solar PPAs?
Let’s walk through with an example. Say you own a cold storage facility that uses around 120 MWh of electricity per month and the current tariff rate you are paying for electricity is $0.240/kWh. This adds up to an electricity bill of $28,800 per month.
Let’s assume that you’re able to install a 500 kWp solar PV system on your roof that generates around 55 MWh of solar electricity per month. If you sign a solar PPA at $0.120/kWh (a 50% discount) of solar energy, every month, you will be paying $6,600 on the first 55 MWh of your energy consumption generated from the solar panels. The remaining 65 MWh of electricity will be from the grid adds up to another $15,600. This gives you a total net electricity bill of $22,200 with a $6,600 monthly savings, or a nice $79,200 each year without any out-of-pocket costs – that can be equivalent to hiring a few additional employees!
There are clear advantages to getting solar Power Purchase Agreement. However, the long term savings that you can get with a PPA is often lower compared to an upfront purchase of a solar PV system. Property owners may save more in the longer term if you own the solar system. This is because any solar energy generated can directly offset your electricity bills.
In Singapore, solar owners can also benefit from alternative payment schemes for excess solar electricity generated or by selling Renewable Energy Certificates (RECs). When you sign a solar PPA or solar leasing arrangement, these benefits will be passed on by the solar developers to you in the form on a greater discount on your electricity bills.
The Bottom Line: Solar PPAs allow you to benefit from immediate cost savings on solar while not having to fork out upfront costs. This is especially suitable if you don’t have the upfront capital to purchase solar, or otherwise do not wish to own and operate a solar energy asset in the longer term.
If you are interested in getting a solar PPA or solar leasing arrangement with us, click here!
This article was first published on 12 February 2021 and last updated on 31st October 2022 to include additional details.
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