Power Purchase Agreement
 

Power Purchase Agreement: Best Practices of Choosing a Corporate PPA/Leasing Partner


Power Purchase Agreement: Best Practices of Choosing a Corporate PPA/Leasing Partner

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.

What is a Power Purchase Agreement (PPA)?

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.

What is the PPA Process?

The Power Purchase Agreement (PPA) process usually goes like this:

  1. Companies with commercial or industrial facilities with sizeable roofs and high electricity consumption bills can implement a PPA.
  2. Determine the requirements of the PPA, including its tenure and other considerations.
  3. Create a Request for Quotation (RFQ) and reach out to prospective PPA providers.
  4. Compare the offers received and ask for more specific details.
  5. Negotiate the terms of the contract based on the most compelling offers, commercial structure, and energy risks.
  6. Sign the PPA/Lease agreement.
  7. PPA Provider constructs the solar system.
  8. Monitor and manage your energy sales and risks throughout the tenure.

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.

Who Writes the Initial PPA Contract?

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.

Benefits of a Power Purchase Agreement (PPA)

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:

  • A zero CAPEX investment with a lease-to-own arrangement.
  • There are no additional costs for system insurance, maintenance and repair, licensing, etc.
  • Assured fixed long-term costs; no upfront costs for solar panels.
  • Purchase power at a lower rate and hedge against the future rise of electricity rates.
  • Remove the solar system at no additional charges or transfer the renewable asset ownership to you.
  • Improve business cash flow with immediate cost-efficient savings.
  • Enables companies funding renewable projects to receive “green attributes” like Renewable Energy Certificates.

 

Finally, Choosing the Right PPA Provider for Your Business

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:

  • As mentioned above, it’s always smart to compare more than one proposal.
  • Audit the shortlisted solar companies on their local presence and support.
  • Check that your corporate PPA partner is licensed (ST/SEDA).
  • Ensure that the company has credible experience implementing Solar PPA projects locally.
  • Ask about the financial capability of the Solar PPA/Lease company.
  • Ensure the company has a strong knowledge of local policies.
  • Inquire about performance output guarantee.
  • Ensure the company has Asset Management/O&M capabilities.
  • Ensure a mature and fair PPA Agreement.

 

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.