There is no denying the environmental and financial benefits of solar energy. The idea of harnessing the energy of the sun to produce electricity is gathering steam, and it shows no signs of slowing down. Although most companies are extremely open to the idea of powering their operations with clean energy from the sun, they almost always balk at the high upfront costs required to get started. Yes, there are tax incentives and, in most cases, instant savings on electric bills; but a business still needs to supply the upfront capital to develop a solar project.
This problem isn’t only relevant to small and medium size businesses. Even Fortune 100 companies grapple with the same issue. In most cases, large companies have a public sustainability mission or plan that requires a certain amount of renewable energy procurement. Some companies resort to purchasing renewable energy credits, while others don’t want to be denied the distribution and transmission savings of onsite solar installation – thus opting for a creative funding option that requires zero capital expenditure. This option is commonly known as a Power Purchase Agreement (PPA) and it is growing in popularity.
In simple terms, a PPA is an agreement to purchase power from a renewable energy asset that is installed and owned by a solar developer. The entity using the power, known as the offtaker, does not own, operate, or maintain the asset. The developer carries the maintenance risk and is incentivized to keep the asset producing power for the term of the agreement.
In an onsite PPA, the offtaker also serves as the host of the solar array. That means that the solar panels are physically installed on the offtaker’s property (or neighboring parcel). For example, a manufacturing facility with a large roof area could serve as the host of the solar array it uses to generate power for operations.
Let’s walk through a hypothetical scenario with ACME, a logistics company with an interest in solar energy.
- ACME reaches out to a solar developer and expresses interest in solar.
- The developer completes a preliminary feasibility analysis to confirm that ACME can benefit from a solar installation.
- The developer then puts together a solar project with panel location, energy production, and financial information.
- ACME prefers not to own and operate the solar array but would like to see savings as soon as possible.
- The developer offers a PPA that allows ACME to lock in a stable and predictable cost of energy for the next 25 years.
- ACME reviews the offer and signs a letter of intent (LOI) that leads to a thorough due diligence process.
- A finalized PPA is presented to and signed by ACME. ACME also signs a lease agreement to allow the developer to use a portion of its land to site the solar array.
- The developer bears the burden of managing the whole design and installation process while ACME simply receives status updates.
- Once complete, the system goes through a rigorous testing process as well as electrical inspections.
- The system is turned on after permission is received from the public utility company and ACME begins to use clean renewable energy while reducing operational expenditures – resulting in an immediate increase to ACME’s bottom line.
In conclusion, PPAs make it possible for companies of all sizes to take advantage of renewable energy without incurring the large initial investment.
Start Using Solar Energy Today
At BAI Group, we offer free feasibility assessments to companies (including non-profits) that are considering solar energy or other renewable energy projects. Our experienced renewables team will work closely with your facilities or operations staff to determine if you qualify for a solar PPA. We’ll manage the entire process from start to finish. Interested? Contact us for more details.