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Since the Covid-19 pandemic upended the economic landscape two years ago, industry leaders continue to struggle with operational expenditures. Specifically, one of the top three positions for business expenses is allotted to energy use.
A Power Purchase Agreement (PPA) then serves as a solution to address such issues. After all, solar energy contributes significantly to cost savings for many companies.
While conventional solar energy financing options were direct purchasing, PPA (sometimes known as Solar Leasing) is now at the fore of zero CAPEX solar solutions. This solution allows businesses to buy energy at lower rates from a trusted solar PPA partner to complement the base supply from a power distribution company.
Organisations looking to ease up cash flow and preserve their competitive edge in the market should consider this option. Explore and learn more about PPAs in this article, including the best practices for choosing the right provider.
A Power Purchase Agreement (PPA) is a contractual arrangement between a commercial or industrial buyer and an energy provider. The corporate PPA partner operates an onsite energy system generated by renewable assets, such as wind turbines or solar panels.
Under the PPA arrangement, the provider installs a solar system with zero investment from the customer. The customer, in turn, signs a long term agreement with the PPA provider to purchase the generated solar electricity at a pre-determined price.
On top of receiving low-cost electricity, customers can also hedge against the potential rise in electricity tariff rates. So really, it’s about posterity, as solar energy always is.
The Power Purchase Agreement (PPA) process usually goes like this:
After adopting a corporate PPA, your electricity bills would naturally be lower. You’ll only have to pay for the solar energy generated from the system at the PPA tariff.
In addition, the investor would be the one responsible for operation and maintenance (O&M) costs throughout the lease period. Customers can then enjoy reduced operational expenditure (OPEX) without worrying about unexpected costs.
Typically, the PPA provider is the one who initiates the draft of a PPA, depending on the energy provider’s RFQ. An experience PPA provider would have a mature and fair PPA contract that has been used by many of its clients before.
In Malaysia, one option is to sign a template Supply Agreement with Renewable Energy (SARE). A Solar SARE is a three-party agreement between the seller, offtaker, and Tenaga Nasional Berhad (TNB). However, a SARE agreement usually results in a higher cost for the buyer will be charged an extra meter billing cost by TNB, which is generally between 3-5% of the tariff offered by the PPA provider.
The advantages of adopting a PPA are plentiful. For one, it allows renewable projects to increase revenue certainty, which would otherwise not be plausible in fluctuating energy markets.
Other avenues of opportunity are as follows:
Now that we understand how the PPA process works, how do you determine the one most suited for your organisation? This is arguably the most important step you’ll take in the PPA process.
Solar projects are a long-term commitment not to be taken lightly, and you want the best partner by your side. So refrain from jumping at the first offer, and contemplate the critical facets of your partnership before making a decision.
Here’s a comprehensive checklist for selecting the best solar energy PPA provider company:
These days, running a business with “green attributes” can help companies maintain competitive advantages across diverse industries. This precedent is partly due to the emphasis consumers are increasingly placing on environmentally aware businesses.
By lowering your carbon footprint and endorsing a renewable future, you can attract more customers whilst contributing to environmental sustainability.
Discover more information about the economic values of going green and how you can combat sky-high OPEX even in this pandemic.