For commercial property owners, the opportunities with solar PV are significant. In the short-term, to reduce energy costs, but over the longer term maximise returns by generating their own electricity. Traditionally, there were capital costs to deploying solar installations preventing many from taking advantage of the opportunities represented by their property. However, the interest of institutional investors created the Power Purchase Agreement (PPA).
Solar PV power is still in infancy compared to conventional energy sources but as we start to witness an increase in the deployment of complementary technologies such as energy storage and electric vehicle charging, adoption in the commercial and industrial (C&I) sector is set to increase at an exponential rate.
Two predominant factors are driving the inexorable march towards renewable sources of power in the C&I sector; energy prices and CSR policies.
A solar PPA is an agreement in which an investor funds the installation of a solar system at no capital cost to the property owner. This includes working with an experienced developer and asset manager who facilitates the technical design, gains necessary permissions and manages the installation of the solar PV system. All of this is backed by professional institutional investors that provide the capital based on the returns they receive from the electricity generated over the life of the system, which is consumed by the property owner.
Generally, the life of a PPA is around 25 years (although this can vary) and over this period the customer receives a significantly reduced electricity tariff offsetting the costs from their utility provider. Additionally, clients have long-term contracted pricing, which gives them budgeting transparency helping protect against the volatility of the energy market (we have witnessed electricity prices of c.6% in the last few weeks alone).
OPERATION AND MAINTENANCE OF THE SYSTEM
Solar PV systems are not ‘load and leave’. Installations require an active operations and maintenance programme to ensure they run smoothly, enabling them to generate the forecast electricity generation, returns and savings throughout their lifetime. This inevitably adds a financial burden over and above the capital purchase, not to mention the hassle factor of managing the process. Some businesses simply don’t have the experience or expertise to manage this type of asset, or indeed monitor its ongoing performance.
Added to the ongoing costs are the recent increases in business rates for companies with a solar installation. These represent significant multiples on historic rates depending on the system capacity; with a PPA these rates do not apply as the asset is owned by a third-party investor.
THREE MAIN REASONS WHY PPAS BENEFIT CLIENTS;
– Immediate reduction in energy costs: Clients receive significant energy savings and solar PPAs also provide a predictable cost of electricity for the term of the agreement, with the price the client pays increasing at an agreed rate.
– No capital investment: Without any upfront investment, the client can begin saving money as soon as the system becomes operational.
– No ongoing maintenance burden: The asset manager takes responsibility for system performance and operating risk.
PPAS IN A SUBSIDY-FREE WORLD
As a result of successful global deployment of solar PV during the last decade, we have witnessed solar’s transition from an alternative asset class into a mainstream energy source and a critical component of the energy mix.
This, coupled with the availability of a lower cost of capital, highly professional & experienced providers who are able to de-risk the process from a client and investors perspective and a continued decline in the cost of solar equipment are important factors in enabling organisations to take advantage of PPAs without any reliance on government subsidies.
Integrating battery storage and electric vehicle charging with a commercial roof mounted or carport solar PV system under a PPA is fast becoming a reality and will be mainstream as we move through the remainder of 2018 and into 2019.
ZESTEC ASSET MANAGEMENT
Zestec funds and manages high-quality new energy assets on behalf of its clients and investors through its PPA agreements. Providing a full service through a network of carefully selected partners, we create long-term relationships with our clients to maximise the benefit they receive from their solar PV systems.