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 pay for the upfront costs of a solar PV system. The property owner agrees to loan their rooftop’s solar system to a solar energy developer. In return, the property owner is entitled to purchase the solar system’s electricity output at a discount — often 15-30%. Solar PPAs are usually long-term contracts that last around 20 years. In Singapore, they are also sometimes referred to as “solar leasing”.
A solar PPA is often applicable for commercial or industrial buildings that have a rooftop solar potential of at least 150 kWp (roughly a rooftop area of 1,500 sqm) and more than 15 years remaining in their lease term.
How does a Solar PPA work?
The terms of a solar PPA can vary based on several factors. These include the solar developer, the building’s rooftop solar potential, local regulations and more. That said, here’re some common facts about solar PPAs:
- Discounted Solar Electricity. Property owners enjoy a fixed rate structure or discounted rates at 15% to 30% less than prevailing market electricity prices.
- 15 to 25-year Contracts. However, as the cost of solar continues to decline, minimum contract durations are likely to reduce with time.
- Solar PV Assets owned by Solar Developers. The solar energy company covers upfront costs to own the rooftop solar asset and pays for potential 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
- More predictable energy pricing with the ability to lock in fixed electricity prices to protect against unpredictable wholesale energy prices
- Limited risks from owning and operating an energy asset by only paying for solar energy generated
- No ongoing operational costs as solar developers manage and pay for the maintenance of solar panels
- 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 $0.15 per kWh. This adds up to an electricity bill of $18,000 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 with $0.10 per kWh (a 33% discount) of solar energy, every month, you will be paying $5,500 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 $9,750. This gives you a total electricity bill of $15,250 with a $2,750 monthly savings.
There are clear advantages to getting solar PPA. However, the long term savings that you can get with a PPA is often substantially lower compared to an upfront purchase of a solar PV system. You can 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 leasing arrangement, these benefits are enjoyed by the solar developers, and may not be passed on to you.
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 suitable if you don’t have the upfront capital to purchase solar, or do not wish to own and operate a solar energy asset. However, if your aim is to maximise financial returns in the long term, owning the solar system may provide you with higher long term cost savings.
This article was first published on 12 February 2021 and last updated on 5 May 2021 to include additional details.
Get an Instant Solar Estimate for your Property Now!
Whether you’re ready to install solar panels on your rooftop, or just wondering how you can benefit from solar, use our instant solar assessment tool to get an estimate of the solar potential of your property and find out how much you can save. At Solar AI, we combine geospatial analysis of satellite imagery with big data and artificial intelligence to provide you with reliable and accurate solar information so that you can make a better solar choice!